Looking @ W.D. Gann – Part Five

Gann Swing Trading

Gann was probably one of the first ever Chartists who used charts to trade with and from – I’ve not conducted a thorough research of stock market history so I can’t be 100% sure either way, anyway the point is in the early 1900’s Gann used charts to trade from and with – fact!

(I can remember trying to research charting and technical analysis methods in the early 1990’s and in the UK I could find very very little! This was prior to the internet and finding the information was difficult – maybe I was looking in the wrong place?  Maybe but the experience put me off looking to hard for years)

The basics are that the Swing Chart shows you the direction of the trend and until a swing high/low is taken out then the trend is intact.  At first Gann used a 3 day swing chart to make up his swing charts, just before he died Gann changed his thinking to using a 2 day swing chart

For an authoritative view on this subject I’d refer you to:  http://www.marcrivalland.com/ who uses and trades Gann Swing Charts, Marc has also written a fantastic book covering the subject too of which I recommend.

I have also listened to Marc in a seminar and he makes around 15-25% per annum from trading the FTSE100 index using this method

I’m being really lazy here and not detailing a chart for you to visualise – google “gann swing trading” and take a look for yourself

Basically Gann Swing charts define the Higher Highs and Higher Lows of an uptrend in visual form and vice-versa for a downtrend.

Please note that where an Elliott Wave ABC correction occurs the Swing C of the ABC WILL trigger a FALSE buy or sell on the Gann Swing chart – I keep telling you nothings perfect and this is where Gann swing charts fall down when there is a clear ABC correction based on Elliott Wave Theory!.

Enjoy

The Hovis Trader

Looking @ W.D. Gann – Part Four

In this lesson let’s look at Gann Angles.

What are Gann Angles?

From Gann’s courses it is obvious that to him Angles played a direct part in his work and had trading rules based on what price did around and at these angles.

Gann used Geometrical angles of varying % to gauge a price move

Let’s have a look at Gann’s 1 x 1 main angle, this is a 45 degree angle – the actions of this line basically “square” time and price because if price follows this angle it is moving at a similar rate as time too!:

Let’s add Gann’s 2 x 1 angle now:

These are Gann’s main angles that he used:

The 1 x 2 Gann angle controls price action 12 months apart to the MONTH!

Gann projected these angles from tops (usually downwards) and from bottoms (usually upwards) he also projected the 1 x 1 from ZERO on the price axis but we’ll not complicate matters.

Please note that in Gann’s famous “Wheat 120” article, he used his Angles to predict that Wheat would hit the price of 120 by a certain date – it hit it to the tick in the last hour of trading for that contract!

From this I can deduce that Gann knew when a time cycle was due to expire and used his angles to predict price levels – the ultra hard part in this is knowing what time cycle to use!

Take a peek @ the S&P500 of late:

Price adhered to a key Gann Level (downward slope) from May 2011 to August 2011, it then followed the 2 x 1 Gann Angle from August 2011 until April 2012 (Blue line directly above the Red line)!  This meant that prices rose twice as fast as time passed by or the equivalent of 2 points for every trading day.

You can see from these and other examples just how price respects some of these angles and completely disregards others too!

I’ve kept these charts as clutter free as possible, in reality, you would project Gann Angles from all major swing highs and lows this has the effect of have many lines Cris crossing on the charts up and down and for the purposes of this lesson it would add nothing but confusion

Please note I am not teaching you everything there is to know on Gann and his various methods, that is for you to research and look into if you find the subject interesting and want to delve deeper.  My aim is to introduce you the subject area only, so that you understand that over 100 years ago Gann was on the ball with many methods still used today.  Gann Angles are a complex subject area of which I have only touched on in this post.

Now I have to add that just as placing any Trendline on your charts there is NO certain method to ascertain when a move’s over.  In plain English, they are more of a lagging indicator than a leading one in my opinion – however, a trading strategy could be constructed to use them I’m sure.

Gann Angles and Trendlines are not the same – they have differing purposes.

Best of luck

The Hovis Trader

Looking @ W.D. Gann – Part Three

We’ve looked and considered key quotes, statements and observations of W.D. Gann – he made many more and if you’re interested in his works then I cannot recommend enough his books and courses.

Gann also noted that between price swings (ranges) there are resistance and support levels, Gann broke these down into 3rds and eighths – Simply DIVIDING the range by 8 & 3 to obtain the respected % division i.e. 33.3%, 66.6%, 62.5% etc

Some of these are incredibly close to Fibonacci levels and one has to assume that Gann knew and understood about Fibonacci levels but choose to use his own system of determining price support and resistance levels.  Of it may be that Gann was oblivious to Fibonacci and applying it in the markets of which I very much doubt as he must of come into contact with R.N. Elliott (of Elliott Wave Theory) during both their times commenting on financial markets.

Let’s take a look at all these levels:

Ganns Eighths

Eighths & Thirds

Fibonacci Levels – for comparison purposes to Gann Levels

As you can see from this brief look at Gann and Fibonacci levels they are sometimes hit to the tick and others price is halted just short or after the appropriate level – there is no way to pinpoint this.

This means that it is also impossible to accurately predict which level will hold, the important part is realising that price OFTEN corrects at these levels

Now Gann also applied these levels to TIME, but that is another matter and probably a post I’ll not get involved in as it is highly subjective, but, essentially let’s pretend that we are monitoring a 52 month TIME cycle – Gann would divide this into 3rds and eighths etc to look for possible reaction points in Time

Gann said that TIME was the most important factor to consider, yet he died with no exact mention [I know he indirectly mentions it in his courses] of the exact perameters that he used, they are not in his courses – we know that Gann made mistakes because his Financial Forecast that he created is slightly out by a few years for his predictions on the markets in the 2000’s – although I salute him for being able to predict them that far in advance in the first place.

Now I’ve studied both Gann and Fibonacci levels so far I’ve not been able to accurately predict which level price will reach but more often than not the 50% level is reached for retracements and the 100% extension/projection level.  It’s a case of see what happens when price gets there, HOWEVER, if you employ the tactics of Robert Miner other Fibonacci projections falling around key support/resistance levels make for  a high probability zone – but still we never know for certain!

Gann liked the 50% level, here he wrote “Always remember that the 50% reaction or halfway point of the range of fluctuation or of the extreme highest point of any particular move is the most important point for support on the downside or for meeting selling and resistance on the way up.  this is the balancing pont because it divides the range of fluctuation into 2 equal parts or divides the highest selling point into 2 equal parts”

Gann’s courses (which are 1000’s of pages deep) contain more detail and examples – remember these courses that he sold in the 1930’s sold for thousands of US$!

Anyway we can see that Gann considered and used support/resistance levels of 8ths and 3rds

Bonus entry:

In Gann’s courses he makes the following statement, along with many others[edited]:

“Mathematics is the only exact science.  emerson said ‘god does indeed geometrise’.  another wise man said ‘ there is nothing in the universe but mathematical points’ and Pythagoras, one of the greatest mathematicians that ever lived, after experimenting with numbers and finding the proofs of all natural laws, said ‘Before god was numbers’.  We use 3 figures in geometry – the circle, the square and the triangle.  We get the square and triangle points of a circle to determine points of time, price ans space resistance.  We use the circle of 360 degrees to measure Time and Price”

Gann often used criptic phrases within his works (such as the one directly above) which has caused thousands of traders/investors try to work out his exact meaning.

Hope you enjoy

The Hovis Trader

Looking @ W.D. Gann – Part Two

Previous posts:  Introduction and Gann’s 24 Rules + Part One = Business Cycle / the end of Boom and Bust!

In Part Two, I’d like to focus on a few of Gann’s observations and Quotes – still highly valid and applicable 100 years later!

“Every man must get his stock market education and must remember that one never graduates from the Wall Street school.  You must take post-graduate courses every year to keep up with the times; in fact, keep ahead of the times, in order to make a success in Wall Street”

The Wise Fool:    “The cock-sure trader who thinks he knows it all, follows tips and inside information.  He condemns what he does not understand and never makes progress because he thinks he knows it all.  Such a man calls a follower of science and charts, a fool, but the follower of charts is a wise fool.  The natural or average man considers science as applied to the stock market foolishness and condemns charts because he does not know how to read them.  He has not had years of experience and has not been trained to properly read or accurately determine the future course of stocks.  The successful trader is the man who knows that he does not know it all and who is always trying to learn more.  When once a man decides he knows it all about the stock market, he is doomed to failure.  When activity decreases, stagnation sets in and when a man no longer continues to learn he goes backward, not forward.  A successful man must have a plan and rules and follow them.”

“Markets usually move in 3 or 4 sections”

“When a market begins declining or an individual stock starts down, it usually makes 2,3 and 4 movements before it reaches final bottom,  If the trend is going to reverse, it will only make the 1st and 2nd decline and then turn up again.  But after a prolonged decline and a 4th move down, you should watch for the bottom and change in trend”

“There are several sections to a major movement or swing”

“It makes no difference how high or low a stock goes during market hours; the price at which it closes shows whether it has made a gain or loss over the previous day”

“After it gets out of the sideways movement, which is always accumulation or distribution, and breaks into new high or low territory, then you can trade in it with some certainty of having determined the correct trend”

“The big money in many stocks is made by taking a long pull position, but there are times when it does not pay to hold stocks for the long pull, depending upon the cycle which the market is in and how near the market is to the distributing stage.”

“Never buck the trend, go with the trend always and you’ll make money”

“MORE PROFIT IN SWINGS: If you will go over any active stock over a period of 5, 10 or 20 years and note all the moves of 10 points or more, you will see that there is more profit trading for these swings than there is trading for dividends or holding for big increase in capital”

We can see from these quotes Gann made that he was truly on the ball and understood the markets in the early part of the 1900’s – I truly believe that today’s traders need to learn, understand and apply these concepts to be successful.

For Instance, Gann’s “More Profit in Swings” – I discovered this concept by simply looking at charts and seeing that markets often had decent swings and by being part of those swings I’d grow my capital faster than buying and holding, this then led onto investigating how to join the swings.  Years later when reading Gann’s courses its nice to see my original thinking & observations justified.

It’s interesting that Gann as R.N. Elliott (Elliott Wave Principle) noticed that markets move in swings of 3-4 sections – this is essentially the basic explanation for the impulse wave, but Gann obviously refrained from labelling swing points.  Gann was also using resistance levels (another posting) and R.N. Elliott used the Fibonacci process to identify support/resistance levels.

Keep an eye out for more on Gann in the weeks to come + charts

All the best

The Hovis Trader

Rebalanced your Portfolio recently?

I used to do this when I was a Financial Adviser, it makes logical sense when a client is approaching retirement to move assets from Stocks into Bonds for safety of capital – in a bull market this is sound advice, through in a deflationary depression [of which I believe we’ve been in one since 2000] and rebalancing is risky – if the Bond bubble bursts it could reduce peoples retirement assets.

Although the report mentions Elliott Wave counts, I don’t use them, they could be spot on they could be way off the mark – one things for sure the Bond market has grown high and fast and we all know markets don’t do that forever.  Also I know for a fact that for the past 5 years Financial Advisers [I still stay in touch with some] have preferred Bond funds over equities for the ‘safety’ factor!

As usual, its the content of the report that I find useful and interesting – not the Elliott Wave counts

Enjoy

The Hovis Trader

Unsuspecting Bond Fund Investors Are Set Up for a Shock Why risk in the rebalanced portfolio is ramping higher September 19, 2012

By Elliott Wave International

During market pullbacks, financial advisors use a boilerplate response: “Let’s rebalance the portfolio.” Investors have heard that one for years.

The recommended allocation varies depending on a client’s age and risk tolerance, but it typically involves shifting funds from stocks to bond holdings.

The evidence shows that many investors did just that in response to the 2007-2009 financial crisis – at the fastest rate in decades. Bond fund assets have risen eight-fold over the past 22 years.

Investors now hold more than $800 billion in bond funds. Just take a look at this chart from a June 6, Elliott Wave Theorist Special Report.

Investors who increased their bond allocation probably feel financially safer.

After all, bond funds have been more stable than stock funds, and they provided higher returns than money market funds.

Yet extrapolating the past into the future is often a major mistake.

During the coming collapse in the value of debt, investors’ interest in diversified funds of all stripes-debt, equity and commodity-will fall precipitously. The drop will come as a shock, especially to those who “rebalanced” from stocks and commodities to bonds after the markets panicked in 2008.

The Elliott Wave Theorist, Special Report, June 2012

What should safety-conscious investors do?

The Theorist Special Report offers a clear answer, one that’s just as relevant now as when it was published in June.

You will also learn about a striking parallel between the bond market of 1929-1932 and today and what to expect next.


Free 10-Page Report: Major Top in the Bond Market on the WayPrechter’s message to bondholders today: Beware.Prechter warned investors about looming destruction in tech stocks, real estate, blue chips and commodities — all at a time when conventional wisdom considered them “safe.”Here’s what he’s saying now: Whether you have your money directly in bonds or your mutual fund does, your savings could be at risk.

You’re just one click away. Follow this link for instant access to the first four pages of Prechter’s free report.

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Why All the QE and low Interest Rates? – Deflation Report

This free report might just help to answer what’s been going on in the markets over the past few years, at the very least it will explain WHY central banks are being forced to offer ultra low Interest rates and WHY they have been pumping money into the system in the form of QE and you’ll understand WHY if inflation keeps falling they’ll keep the taps turned on!  The choice is yours whether you access, read and understand the report, those who do will have an idea how to prepare themselves.

One thing is for sure, those of you that bother to download and study the report will know more about QE, inflation and deflation than the average Economist – we live in a world whereby actions affect our finances, if in centuries of financial trading economists, central bankers and governments have never managed to tame inflation or deflation then why should this time be different?  You’re right, it probably won’t be so you need to try to understand what’s going on – hence the report, it was written over a decade ago but it’s continually updated.

Enjoy

The Hovis Trader.

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As the biggest credit bubble in history continues to shrink, consumer prices have stayed flat over the past several months, meaning there is ZERO sign of inflation in the economy — despite growing commitments from the U.S. government.

So what’s keeping inflation at bay, given all the stimulus money promised? The answer: Deflation — an overwhelming urge for consumers to liquidate their assets for cash.

And this new economic phase is finally becoming too obvious to ignore, as explained in recent commentary from the world’s largest technical analysis firm. “The economy is moving into a critical new phase, an outright deflation in which ‘prices fall because people expect falling prices.’ Obviously, this implies an element of recognition, as efforts to protect against indebtedness and falling prices contribute to further declines. We can tell deflation is entering a new stage because of the language and ideas that financial observers now use to describe it.” — The Elliott Wave Financial Forecast (September 2010)

So how do you protect yourself from deflation? The first step is to understand it.

Elliott Wave International has put together a complimentary 90-page ebook, now updated with 30 new pages of commentary from Robert Prechter through 2010. The ebook is designed to help you prepare, adapt, survive and prosper in the event of deflation.

Prechter has spent most of the past decade as an outcast among financial forecasters, because of his certainty that deflation would soon shock virtually all investors – despite the policy makers and string-pullers who promised to prevent it.

To show you just what Prechter’s deflation forecast was up against, consider this: Experts from all schools of the economics profession said deflation was “utter nonsense,” a preoccupation of “small children,” and as likely to happen as “being eaten by piranhas.” How could deflation begin when the entire economics profession unanimously said it’s not possible?

Yet there’s no question some deflation HAS occurred. The question now is, will it get worse?

In his new 90-page ebook, you’ll see why Prechter argued deflation was likely, and why he was certain a monumental deflationary trend would unfold sooner rather than later.

Remember, deflation is extremely rare; it last happened in America almost 80 years ago. So, a forecast of deflation that proves accurate is a monumental feat – especially when all the “experts” disagree.

So if economists were unable — or worse, unwilling — to warn you in advance about the threat of deflation a few years ago, what are they not warning you about now?

It’s time you gave the deflationary scenario a serious look.

Please follow this link to get your free 90-page ebook and deflation survival guide from Robert Prechter now.

Thought Provoking?

Another article from my friends @ Elliott Wave International.

If you find this article interesting and thought provoking, search for news articles in February/March 2009 to see what was being said by the media at that time compared to market action and subsequent market action.

I’ve mentioned it many times on this site in the past – The Federal Reserve Bank was created to prevent financial panics, the markets obviously ignored that fact in 1929, 1921, 1966, 1987 and 2000’s! [to name a few crashes] – clearly they’ve either forgotten their remit, failing in their abilities or the simple fact the can’t control markets.

I believe that markets move through Time and Price cycles and until the cycle has completed the market will run its course no matter what – unless the markets shut down for trading.  This is why we often see markets buck intervention and continue their planned course.

QE measures were also issued during that decline to no avail!

The Hovis Trader

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Apple’s iPhone, Germany, the Fed: Why It’s All Irrelevant to the Market’s Trend
R.N. Elliott’s other major insight: News events do not impact market price patterns September 14, 2012

By Elliott Wave International

A lot of people know that R.N. Elliott discovered the Wave Principle.

Yet few are aware that Elliott made another observation during his years of studying the stock market.

As the Wave Principle forecasts the different phases or segments of a cycle, the experienced student will find that current news or happenings, or even decrees or acts of government, seem to have but little effect, if any, upon the course of the cycle. It is true that sometimes unexpected news or sudden events, particularly those of a highly emotional nature, may extend or curtail the length of travel between corrections, but the number of waves or underlying rhythmic regularity of the market remains constant [emphasis added].

R.N. Elliott, R.N. Elliott’s Masterworks, pp. 158-159

What a stunning insight: Even major news does not alter the market’s main wave pattern! This seems to defy logic because most people believe that news and events are the very things that drive the stock market.

Yet, it was barely 100 years ago when most people believed that only birds could fly.

And even then, most people would never believe that a steel-encased object weighing nearly a million pounds (Boeing’s 747) could get airborne and fly at 500 miles per hour.

Yet, natural law is what governs airplane flight, the buoyancy of metal ships, the incandescent light bulb, radio transmission over the air and, yes, the Wave Principle.

Natural law is inherent in the pattern of stock prices. That’s why outside events do not materially influence the pattern’s behavior.

This is particularly relevant today: Recent news covered Apple’s new iPhone, which is expected to boost U.S. GDP; the European Central Bank’s pledge to make “unlimited bond purchases”; Germany’s Supreme Court approving the eurozone’s permanent bailout facility; and the expected Federal Reserve announcement on whether to initiate more quantitative easing.

None of this will have an effect on the market’s overall price pattern.

Charts of the Dow Industrials reveal that changes in interest rates, the deficit, the price of oil, terrorist attacks, Fed announcements and even wars do not change the market’s main trend.

How about government bailouts of troubled financial institutions during the 2007-2009 financial crisis?

Please try to pick out on the chart below when those bailouts occurred.

According to the exogenous-cause model, these historic pledges and bailouts should have had immediate results. … According to the economists’ beliefs, the only rational place for them to have taken place would be at the bottom of the market. The minute the authorities began flooding the market with liquidity is the minute it should have turned up.

[The chart below] shows that in fact these actions took place in the early portion of the biggest stock market decline in 76 years. These actions did not push stock prices back up. The market finally bottomed months later, at a time when nothing along these lines happened.

The Elliott Wave Theorist, March 2010

Now, look at this labeled chart to see how you did.

In the 70 years since R.N. Elliott observed that news does not alter the market’s wave pattern, his insight has been proven time and again.

It’s wise to keep your market eye on what really matters: the Wave Principle.

R.N. Elliott drew a chart by hand 70 years ago and the final label is the year 2012! Amazingly, today’s wave analysis confirms that his decades-ago analysis may be precisely on target.

The herd keeps looking to irrelevant outside events to aid their investing decisions. It’s time to break away from the herd and start investing independently. EWI is here to help …


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Looking @ W.D. Gann – Part One

In the Introduction post to W.D. Gann we looked at his 24 Rules that he laid out in the 1900’s, we saw that they are still viable and applicable even in today’s markets (although some might require a tweak here and there).

In this post I want to focus on a few key comments Gann has made over the years and you can see for yourself how this compares to today’s life in the markets and financial world:

“The aim and object of every trader who enters Wall Street is to make money, yet it is a well-known fact that a large percentage of traders lose money.  There are many reasons for their losses.”

“During 1927, 1928 and the first half of 1929, there was much talk of a new era in the stock market and the great value of the Federal Reserve Bank in preventing panics.  Many economists, bankers, large financial operators, and businessmen said that the day had passed when there would be panics caused by money conditions such as had happened in 1907 and previous years.  At the same time these people were talking about the millennium in financial affairs and the stock market, but they seemed to have forgotten what happened in 1920 and 1921.  The decline of 1920 and 1921 following the great bull campaign of 1919 was due to ‘frozen loans’ and tight money.  The Federal Reserve Bank was in existence at that time, but that did not prevent Liberty Bonds from declining to around 85 and stocks from selling to the lowest levels on averages since 1914 before the World War began.  I quote an article which appeared on November 28, 1927, in one of our leading newspapers.  This article was headed ‘Goodbye, Business Cycle’

‘The bugaboo of a ‘business cycle’ has lost much of its terror-inspiring influence.  Scientific management seems to have overcome it.  Years ago much was herd of recurring periods of prosperity and depression, and so-called prophets of business, mostly self-styled, were wont to discourse on business cycles, to the great alarm of industry and finance.  These prophets proclaimed that business moved like the waves of the ocean and that the higher the waves the deeper the gulf between them.  They said that this was true of business, and for a long time they had the country scared to their own considerable profit from their necromancy’

‘But the spell has been broken and the pall of their prophecies has been dispelled.  Businessmen in all lines are freed of the fetish.  They realise that the ‘business cycle’ was a scarecrow.  They know that there is no occasion for such a thing if business is held to an even keel.  All that is necessary to so hold the rudder is common sense, co-operation and good judgment.  There remain a few ‘cycle’ croakers, but their throats are horse from the ineffective incantations, and business is going on in a highly prosperous way with no ‘cycle’ upheavals in lo, these many years, and with no threat of one.  Business has seen greater boom times but never was on a more substantial basis, because businessmen have learned how’

It is easy to see how confident this writer was, how he winds up his article by saying, “Business has seen greater boom times but never was on a more substantial basis, because businessmen have learned how”.  This writer was honest and conscientious; of that I have no doubt, but he was either ill-informed or incompetent.  He had not gone far enough back in the past to know history repeats in the stock market and in business

Late in the fall of 1929 the worst stock market panic in history occurred and was followed by a slump in business, thus proving the theory that cycles do repeat and while we may have been in a seeming new era, we were only repeating an old cycle or condition which always follows years after wars.

 So we can see back in the 1920’s Gann was aware of the business cycle, Human emotion and influence as well as the Fed’s and media failing to grasp how markets work.

The words of W.D. Gann above have a profound and deep association with events in the markets from 1999!  This is why I place little value of media or government speculation about the economy, markets and the future direction of the markets in their opinions!

If you care to review history and panics, market down turns etc you will see that this happens all the time with reactionary (not preventative) measures taken by governments and the media fall for the rhetoric – hence why I tend to ignore media commentary on the markets.

Recently in the UK we’ve had an Ex-Prime Minister declare (when he was Chancellor of the Exchequer) that he’d banished the boom ‘n’ bust cycle! – Only for the markets to have a major bust!

I keep mentioning in various places that Governments and Central banks cannot control economies and growth – they never have been able to and never will, Gann helps prove this fact with his observations a century ago.

W.D. Gann’s quotes from “Wall Street Stock Selector”

Looking @ W.D. Gann – Introduction

Some of you will know that I am a very big fan of W.D. Gann & R.N. Elliott, these guys noticed things about the market that the masses ignored and to be fair most of the writings on the market pre-computers are some of the best written work available (albeit rare).

This series of posts looks at W.D. Gann – in my opinion he was the greatest investor ever, far superior to Warren Buffett.

I came across Gann a few years back, long after I started trading and from sheer luck it transpires that I follow some of Gann’s rules – I think this is because I view the markets from a mathematical, fractal view point.

Gann’s basic rules for trading the market are still viable in today’s markets, some with a little tweaking, but overall if you followed his basic methods you should still make a success in the markets.  There’s a lot of material in Gann’s published works and still relevant to use today, so I plan to produce a series of posts looking at aspects of Gann’s work in between my regular other posts.

W.D. Gann is renowned for being mysterious – basically he died without fully revealing his true methods for predicting markets, he gave many clues, but never directly said this is exactly how I do it.  So it has led to many people speculating his methods and none of them [those with published work on Gann] have a trading record like his!  To me that says it all about their “discoveries”.

Gann used to make hundreds of trades in a month massively compounding his original starting capital and had  a success rate of 80-95%, that is a feat in itself!  (This has been independently verified as well)

It should be known that W.D. Gann, went bust many times, prior to 1907 it was mainly down to trading mistakes such as novices make then after 1907 the times he went bust was due to Brokerages failures going bust and taking his money with them.  W.D. Gann became a broker too so he’s seen both sides of the trading/investing coin.

This series of posts on Gann will focus on the cold hard facts of his published works and will NOT contain any of the mystery, the key here is to remember that Gann wrote this material during early 1900’s, he was probably one of the first people in the world to use charts to trade from & with, but the material he published a century ago would still benefit new and experienced traders today!

I would thoroughly urge all to purchase Gann’s works, his Master courses can be bought for less than £1000 so don’t fall for the con artists offering them for tens of £1000’s – Yes they are rare but they can be obtained reasonably.

To start with Gann published 24 Rules, here they are, I’ve edited in red my personal thoughts/observations:

  1. Divide your capital into 10 equal parts and never risk more than 1/10th of your capital on any one tradeFor me 10% is way too much and I’d max out at 3%, saying that I bet vast numbers of traders flout this basic rule of Gann’s.  Risking 10% allows 9-10 trades before going bust!  But if you get it right you’ll have big profits.
  2. Use Stop Loss orders. Always protect a trade when you make it with a stop loss order 3 to 5 points away – Sound advice, its approx 3-5% in terms of price rather than points.
  3. Never Over Trade.  This would be violating the capital rule – Again another key rule to managing risk and capital and another one that I bet most [new] traders flout
  4. Never let a profit run into a loss.  After you once have a profit of 3 points or more, raise your stop loss order so that you will have NO loss of capital – this is approx a profit of 3%, Gann used to trade $100 shares, 3 pts = 3%.  anyway another rule flouted and abused by traders – they obviously think they can predict the market!
  5. Do not buck the trend.  Never buy or sell if you are not sure of the trend according to your charts – Just common sense really, but it means you have to have some method of how you define a trend
  6. When in doubt, get out, and don’t get in when in doubt – Proves you don’t always have to be in a trade/position
  7. Trade only in active stocks, keep out of slow dead ones – I do this naturally because I prefer the safety of liquid stocks, but this rule is not as relevant today as it was, however, trading in slow dead stocks will not produce a trend as per Rule 5
  8. Equal distribution of risk.  Trade in 4 or 5 stocks, if possible.  Avoid tying up all your capital in any one stock – nice approach, spreads risk.
  9. Never limit your orders or fix a buying or selling price. Trade at the market – I have trouble with this one but I can see Gann’s point, but I’ve over come this using a specific strategy once in a trade
  10. Don’t close your trades without good reason.  Follow up with a stop loss order to protect your profits – Let’s the market take you out of a position and a tactic that I employ – see THT Propulsion & Gann Pullbacks trade set-up
  11. Accumulate a surplus.  After you have made a series of successful trades, put some money into a surplus account to be used only in emergency or in times of panic – Sound advice, I would also use it to repay debts, credit cards and the mortgage and once that’s repaid use it to treat the family, holidays and general wealth building
  12. Never buy just to get a dividend – I could really go to town on this one!  The number of people I’ve met that think divi’s are the be all and end all.  Yes divi’s are good but if the share price falls 15% for you to then earn 8% from the dividend to me it does not make good financial sense.  You can earn 10 times the dividend by trading the share rather than investing – if done right!
  13. Never average a loss.  This is one of the worst mistakes a trader can make – completely agree and anyone doing it is proving to themselves they don’t know how to trade properly
  14. Never get out of the market just because you have lost patience or get into a market because you are anxious from waiting – doing so is gambling, some of the best positions you’ll ever take will be not to take a position in haste!  We have trading rules and a plan for a reason and that’s not to lose too much money against the winners, unless your gambling then losing all your cash is fair game, hence the term GAMBLER
  15. Avoid taking small profits and big losses – another trait of the new trader/investor that usually helps to wipe their accounts out, however. also thinking that markets always produce big profits is equally as wrong – they don’t.  Really what gann is saying is that often people take quick profits and let losses grow big.  To be successful in the markets you really need your wins to be at least twice as big as your losses.
  16. Never cancel a stop loss order after you have placed it at the time you make the trade – If you do this it is a classic sign that you don’t know what you’re doing in the trading arena – Professional traders KNOW exactly where their stop loss orders go BEFORE they get into a trade/position, this is not an after thought, so why would a stop loss be cancelled?  It is pure common sense to then move the stop loss in favour of the trade once an open position is in play and the trades working out as planned.
  17. Avoid getting in and out of the market too often – Over trading!  I trade a few times a week when active, sometimes I go months without placing a trade – I trade because it gives me the freedom to live my life as I wish, I don’t live to trade – there’s a big difference.
  18. Be just as willing to sell short as you are to buy.  Let your object be to keep with the trend and make money – Too many uneducated people [of the markets] think that shorting the market is bad and fuels the decline, it doesn’t – markets are quite capable of dropping vertically like a stone simply if the market runs out of BUYERS!
  19. Never buy just because the price of a stock is low or sell short just because the price is high – the market can always go higher or lower than you expect, why take the risk of guessing! Remember we don’t know for certain when or where a market will turn.
  20. Be careful about pyramiding at the wrong time.  Wait until the stock is very active and has crossed resistance levels before buying more and until it has broken out of the zone of distribution before selling more – New traders should not be considering this, yes it can leap frog your profits but managing various trades inside of one another is tricky and best avoided until experienced.  for the experienced that aren’t doing this, you are missing a trick, you can turn a normal 3 to 1 trade into a 5 to 1 and more, quite easily within the same time-frame as the 1st trade.  It is adding extra risk but with time, knowledge and experience it can easily be done.
  21. Select the stocks with small volume of shares outstanding to pyramid on the buying side and the ones with the largest volume of stock outstanding on the sell side – Think about this one – supply & demand!  I must admit I don’t consider volume in my trades, but I can see and understand the Supply/Demand issues with the quantity of shares available for sale/purchase and the price implications thereof.
  22. Never hedge.  If you are long of one stock and it starts to go down, do not sell another stock short to hedge it.  Get out at the market; take your loss and wait for another opportunity – I don’t even consider this, for me its not an option if I’m wrong in my belief of market direction I’m wrong and out of the market, hedging just adds another layer of complication that I don’t want to add to my trading.
  23. Never change your position in the market without good reason.  When you make a trade, let it be for some good reason or according to some definite plan; then do not get out without a definite indication of change of trend Flouting this rule shows a misunderstanding of how the markets works.  To put it blunt you don’t know how to trade/invest properly or understand how the market works. 
  24. Avoid increasing your trading after a long period of success or a period of profitable trades – at some stage losses will emerge, ego, confidence and “brilliant trader” syndrome will show their face and catch you out.  A holiday is often nice at these points in time.

“When you decide to make a trade, be sure that you are not violating any of these 24 rules, which are vital and important to your success.  when you close a trade with a loss, go over these rules and see which rule you have violated; then do not make the mistake a second time.”

This just shows you that Gann was on tha ball decades ago (virtually a century ago!), it also shows you the importance of having a plan and a set of trading rules – If these [ Trading plan & Rules] are not written down to suit your style and adhered to then you are gambling in the markets and guessing – a sure fire way to lose money in my books.

Gann delves deeper into each area within his books and courses, I’ll let you discover exactly what he wrote if your interested.

Obviously If you incorporate these into your work you’ll have to think about how they fit your style and might have to adjust somewhat to suit – this is your responsibility to do!  Remember what suits me, might not suit your style at all.

The Hovis Trader

THT’s Market Analysis Part 3

In part 2 we looked at trading with precision using Elliott Wave and we found that sometimes it worked spot on and at other times it failed – forcing us to alter and amend wave counts, take losses and rework our charts – this is of course a very subjective way to analyse and trade the markets, for some it gels for others the concept sounds fantastic but they can’t apply it.

This lesson focuses on my trading set-ups and analysis, including TFT Propulsion, Gann Pullbacks, Pattern, Price, Time and using the DTosc indicator.

Once again a wealth warning – “Nothing works 100% of the time, we will have losses” I hope that after reviewing this post that you can see and understand that there is NOT a one size fits all trading set-up – The markets can only move 3 ways – Up/Down & Sideways and out of those 3 movements the market can only do 2 things being in a Trend or a Correction of which can come in varying sizes.

If your trading set-up only works during Trends then you will endure a string of losses during the corrective, non-trending parts of the market unless you have 2 systems that you can employ.  Then comes the hard part of knowing for certain you’re in a non-trending section!  i.e. Elliott Wave 5 wave impulse should be followed by a non-trending corrective phase of ABC as a minimum, the hard part is identifying the 5th wave and being on guard!

The general concepts and strategies I use are on this site already (apart from THT Trampoline – I’m still debating about whether to reveal it), so forgive me if I brush over key areas – I don’t intend to reprint my trading rules as they’re on this site already and we’ll focus on the recent S&P500 market as previous, although I’ve zoomed into the charts for clarity.

TFT Propulsion

Details on the chart – Ignore the assumptions to Elliott Wave as previous post and as you can see would have resulted in trading the complete OPPOSITE side of the market to our Elliott Wave assumptions! (see THT Market Analysis Part 2 for EW counts)

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