You are down and out after making some big losses, you have
knowledge because you made money in the past, but not all the knowledge because
you broke the rules, gave it all back and some. Learn from this lesson.
W.D.Gann is the Methodalyes that I follow to a tee, using no other indicators
to support his methods. If you have to use other indicators to support W. D.
Gann methods then you haven’t studied Gann in depth.
Having made big losses you are going to be stressed, maybe
sick, your relationship could be in trouble because you have lost all your
capital except $5,000.00 US.
Before we get to trading strategies there’s going to be
quite a number of issues to address –
W. D. Gann’s most important thing is good health.
HEALTH A person can not make great success in any
business unless health is good and more so in the business of trading stocks
and commodities. A brilliant mind cannot work successfully with a weak body. In
bad health you do not have the patience to wait or the nerve to act. If your
health is bad you become despondent, you lose hope, you have fear, and you will
be unable to act at the right time.
I have tried to trade when I was sick in bed and I had
forgotten that I had placed twice as many orders in coffee market than I
thought and lost $10,000 in a few days. I now try to do a couple of hours
exercise 5 days a week and eat healthy food. If your health gives way, the most
important thing to work on is to get your health back in perfect shape for
HEALH is WEALTH.
KNOWLEDGE When you have paid in advance with time and
study, and gained knowledge, then you will find it easy to make money. The more
time you put into gaining knowledge the more money you will be able to make
later.
CAPITAL Capital
is important because without capital you can’t trade. You have a small amount
of $5,000 U.S. and you can make large profits, providing you use a stop-loss
order, and take small losses and don’t over trade.
WHAT TO TRADE You
only have $5000.00 U.S so you can’t afford to lose it. W. D. Gann preferred to
trade in commodities than stocks.
The pitfalls of stocks are:-
• Stocks are issued to the public to get interest free money
• Staff and management get bonuses when the company makes
large profits instead of going to the shareholders.
• Staff and management travel first class or business class,
stay in the best hotels, have credit cards and company cars
• The company can go bankrupt – like Enron, World Com. Etc.
It’s amazing the C.E.O.’s get paid millions in salaries each year and the
company goes broke.
• The insiders sell before the public becomes aware
THE ADVANTAGES OF COMMODITIES:
• They are the necessities of life. • They do not become
worthless, they can only fall in value (you make money shorting them). • They
generally follow a natural seasonal cycle • They have high volatity in drought,
floods etc. than stocks. • Most commodity markets have greater liquidity to
trade options and futures contracts. • W. D. Gann said “it’s easier to predict
commodities than stocks.
SET UP THE TRADE!
I don’t use a computer for charts – it
is not the W. D. Gann method. Hand draw up a less 10 monthly charts on
different commodities, currencies, metals or bonds that are trending. By
trending markets that have broken highs or lows from tops or bottoms over the
last 5 years or more. Make sure you have at least 20 years of data but 30 years
is better when you can get it.
Next draw up your weekly chart going back 3 to 5 years from
the last major high or low.
Look at the market that looks the strongest to buy and the
weakest market to sell out you 10 monthly charts you have drawn. For the market
to be in a Bull market it has to make higher tops and higher bottoms (at least
3 of each)
Draw all your geometric angles (Gann angles) from all highs,
lows and zero line on monthly chart to determine whether the market is a strong
or weak position.
FORM READING. Eighty-five percent of what any of us learn is
from what we see. It has been well said, "One picture is worth a thousand
words." That is why FORM READING or the reading of various formations at
different periods of time is so valuable. The future is but a repetition of the
past. The same formation at tops or bottoms or intermediate points at different
times indicates the trend of the market.
Therefore, when you see the same picture or formation in the
market the second and third time, you know what it means and can determine the
trend.
You do not have to accept my word that the rules I give you
will work in the future as they have in the past but you owe it to yourself to
prove by past records that these rules work; then you will have the faith to
follow them and make money.
FORMATION AT BOTTOMS
AND TOPS By studying stock
formulations of the past you will be able to determine what is going to happen
when similar formations occur in the future, just as you know that there is
going to be rainstorm when you see a heavy dark cloud form. After accumulation
or distribution at bottom or top has been completed, there is a BREAKAWAY
POINT. When you buy or sell stocks at this point, you make money very quickly.
Study the volume/open interest, seasonal patterns, the space
and price movements and the last and most important time period. Similar action
of the market occurs around the same month years apart.
Study the different types of bottom formations - sharp,
double, triple, flat and ascending bottoms.
LAST STAGE OF BULL OR
BEAR MARKET In fast, advancing markets in the last stage of the campaign
reactions get smaller as stocks work to higher levels, until the final section
or run has ended. Then comes a sharp, quick reaction and a reversal in trend.
In the last stage of a Bear Market, after all old bottoms
and resistance levels have been broken, rallies get less or smaller as prices
work lower. Therefore, people who buy have no chance to sell on rallies until
the final bottom has been reached and the first rally takes place. This is why
it never pays to buck the trend in the last stage of a Bull Market or the last
stage of a Bear Market.
RANGE OF BOTTOMS Never consider that a major or a minor trend
has reversed or changed until the bottoms or previous weeks have been broken or
the tops of previous weeks have been crossed. The number of points that a stock
or the averages should decline below a bottom to indicate a change in trend to
lower levels, varies according to the price at which the averages or the stock
is selling.
We consider a range within 1% to 3% points a double or
triple bottom or a double or triple top. In a strong market a stock will break
only 1 point under a bottom and then rally and, in extreme cases, not more than
2 points. As a rule when bottoms are broken by 3 full points it is an
indication for lower prices before any rally of importance.
SINGLE "V"
OR SHARP BOTTOM This formation can
be a sharp, fast decline followed by a fast advance, or even a slow decline
followed by a quick rally from the bottom with secondary reactions until it
advances to higher levels.
"U" BOTTOM
OR A FLAT BOTTOM This “U” bottom is a formation where a stock remains for 3
to 10 weeks or more in a narrow trading range, making about the same top and
bottom levels several times; then when it crosses the intermediate tops, it has
formed a "U" or a flat bottom and is at the breakaway point....a safe
place to buy.
“W” BOTTOM OR DOUBLE
BOTTOM When a stock declines and makes bottom; then rallies for 2 to 3
weeks or more; declines and makes a bottom around the same level the second
time; then advances and crosses the previous top, it has formed a "W"
or double bottom. It is safe to buy when it crosses the top or middle of the
"W".... Which is the BREAKAWAY POINT.
"WV" BOTTOM
OR TRIPLE BOTTOM This is a third higher bottom after a double bottom or
three bottoms near the same level. It is safe to buy when a stock has formed a
"W" and a "V" on the side and crosses the second top of the
"W".
"W W"
BOTTOM OR A 4-BOTTOM FORMATIONS This formation shows first, second, third
and fourth, bottoms. The safest point to buy is at the BREAKAWAY POINT or when
a commodity crosses the middle point of the second "W".
RESISTANT SUPPORT LEVELS Divide the highs, lows, and ranges
into 1/8th and 1/3rd. This will give 12.5 %, 25%, 33.3%, 37.5%, 50%, 62.5%,
66.6%, 75%, 87.5% and 100%.
W. D. Gann was the first trader to do this and all traders
since then say they don’t use Gann are misleading you because they all use
these support and resistance levels.
Look to buy and sell on these levels providing the market is
conforming to the previous condition set out in this article.
STRATEGY With W. D.
Gann’s method you should divide your capital into 10 equal parts (Rules to
Follow) therefore this would equal $500 U.S. There might only be 3 trending
markets therefore you would only use $1500U.S. You wouldn’t be able to trade
futures, you would only be able to trade options. The cheapest way is to do
Bull call spreads and Bear put spreads. This will keep your costs down. If you
get a strong trending market then you can buy out of the money calls or puts.
Example is December cotton chart enclosed. If you bought a
call 5 cents out of the money at the double bottom for $900 and sold a call 10
cents out of the money for $400 (actual costs) you would have a net cost of
$500.00.
When the market went up to 25% retracetment for $1520 U.S
(minus costs $500) give you net profit of $1000.
Do that 10 times in different markets you have doubled your
money.
Now you have a $10,000 account and you apply the same rules
by dividing into 10 equal parts or when the market broke the 50% level at 62
cents you brought a call out of the money strike of 10 cents (72 cent strike)
for $400, it would have been worth $6,000 U.S. The top 84.80 minus strike of 72
– cost of option.
Now that you have made money you now need to keep it.
GANNS 28 RULES TO BE
READ EVERY DAY:
TWENTY-EIGHT VALUABLE RULES In order to make a success
trading in the commodity market, the trader must have definite rules and follow
them. The rules given below are based upon my personal experience and anyone
who follows them will make a success.
1. Amount of capital to use: Divide your capital into 10
equal parts and never risk more than one-tenth of your capital on any one
trade.
2. Use stop loss orders. Always protect a trade when you
make it with a stop loss order 1 to 3 cents, never more than 5 cents away,
cotton 20 to 40, never more than 60 points away.
3. Never overtrade. This would be violating your capital
rules.
4. Never let a profit run into a loss. After you once have a profit of
3 cents or more, raise your stop loss order so that you will have no loss of
capital. For cotton when the profits are 60 points or more place stop where
there will be no loss.
5. Do not buck the trend. Never buy or sell if you are not
sure of the trend according to your charts and rules.
6. When in doubt, get out, and don't get in when in doubt.
7. Trade only in active markets. Keep out of slow, dead
ones.
8. Equal distribution of risk. Trade in 2 or 3 different
commodities, if possible. Avoid tying up all your capital in any one commodity.
9. Never limit your orders or fix a buying or selling price.
Trade at the market.
10. Don't close your trades without a good reason. Follow up
with a stop loss order to protect your profits.
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.
12. Never buy or sell just to get a scalping profit.
13. Never average a loss. This is one of the worst mistakes
a trader can make.
14. Never get out of the market just because you have lost
patience or get into the market because you are anxious from waiting.
15. Avoid taking small profits and big losses.
16. Never cancel a stop loss order after you have placed it
at the time you make a trade.
17. Avoid getting in and out of the market too often.
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.
19. Never buy just because the price of a commodity is low
or sell short just because the price is high.
20. Be careful about pyramiding at the wrong time. Wait
until the commodity 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.
21. Select the commodities that show strong uptrend to
pyramid on the buying side and the ones that show definite downtrend to sell
short.
22. Never hedge. If you are long of one commodity and it
starts to go down, do not sell another commodity short to hedge it. Get out at
the market; take your loss and wait for another opportunity.
23. Never change your position in the market without a good
reason. When you make a trade, let it be for some good reason or according to
some definite rule; then do not get out without a definite indication of a change
in trend.
24. Avoid increasing your trading after a long period of
success or a period of profitable trades.
25. Don't guess when the market is top. Let the market prove
it is top. Don't guess when the market is bottom. Let the market prove it is bottom.
By following definite rules, you can do this.
26. Do not follow another man's advice unless you know that
he knows more than you do.
27. Reduce trading after first loss; never increase.
28. Avoid getting in wrong and out wrong; getting in right and
out wrong; this is making double mistakes.
When you decide to make a trade be sure that you are not
violating any of these 28 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 same mistake the second time. Experience
and investigation will convince you of the value of these rules, and
observation and study will lead you to a correct and practical theory for
successful Trading in Commodities.
Happy Trading!
