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 dif¬ferent periods of time is so valuable. The future is but a repetition of the past. The same formation at tops or bottoms or intermedi¬ate points at different times indicates the trend of the market.
Therefore, when you see the same picture or formation in the mar¬ket 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 your¬self 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 de¬termine 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 mar¬ket 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 reac¬tions get smaller as stocks work to higher levels, until the final sec¬tion 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 resis¬tance 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 bot¬tom to indicate a change in trend to lower levels, varies accord¬ing 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 impor¬tance.
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 secon¬dary 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.
David is financial astrologer like W.D. Gann was. He has been studying astrology since 1980 and studying and trading the methods of W.D Gann since 1983. He conducts a limited number of 4 day workshops per year teaching the more complex methods of Gann such as, Time Cycles, square of 144, square of 52, square of 90, the 360 degree circle chart and the square of 9 chart.
W. D. Gann coded two of his books. ‘The Tunnel Through the Air” and “Magic Word” for a free decoded copy of ‘The Tunnel Thru the Air” Contacts David’s website www.commhedge.com.au and for upcoming workshops. You need to be a registered user to access this information.