W. D.

GANN'S RULES FOR TRADING

A Summary of W.D. Gann's Techniques of Analysis and Trading
Psychological Framework
Master yourself
* Do not overtrade
* See if your trade is based on hope or logic and systems developed by you
Trading strategies
Have different strategies for the four situations:
* Bull market
* Bull market top i.e. reversal from bull to bear market phase
* Bear market
* Reversal phase from bear to bull market
Importance of number 3
Majority of moves will generally occur in time period of three - days, weeks or months.
Never trade in the direction of the trend on its third day.
Tops, bottoms and consolidations
* Tops usually take time to form. Spike tops are less common compared to spike bottoms. Tops are
marked by extreme movements in medium and small stocks. They will rise by even 20% in a day.
These are called blow offs. Because of this short-selling on extreme top is risky.
* Divergences will appear at the top but they cannot be used for timing the trade. Time cycles shall
indicate when the actual reversal will start.
* In bull market watch for a correction which is greater in both price and time than the previous
corrections in the move up. (Opposite in the downmoves).
* Highest probability of support is that the corrections in the uptrend will all be very close to equal.
* Swing objectives - add the range to move to the top of that move to find out the target for the next
upmove or reverse in the bear market.
* Square of numbers and 50% of the difference between those squares are significant support and
resistance, but cannot be traded by themselves.
Gann says that there can be nine mathematical proofs of any point of resistance
1. Angles from top and bottoms
2. Angles running horizontally i.e. the previous tops and bottoms
3. Time cycles (vertical angles) (Press a short sale if there are three or four days of sideways
movement after a high day and this is followed by a down day with high volume where low is lower
than the low of the sideways movement and when this coincides with expiry of time cycles)
4. Crossing of important angles originating at zero
5. Crossing or coming together of angles from double or triple tops or bottoms
6. Crossing of double or triple tops or bottoms
7. Past resistance/ support
8. Volume of sales
9. Squaring of time and price.

Weak stocks will generally not rally until either a test of the first bottom or a higher bottom is made
by the market. (That is why AD line is a lagging indicator and generally moves up in the third
wave)The third move trying to break the consolidation top/bottom is the most important. If it fails,
a fast move in the other direction may be expected.
False breakouts from consolidation result in very fast moves. False breakout occurs when a move
outside the consolidation zone fails to sustain in the following week and where the price has not
gone beyond three points above the top. These false moves start with high momentum.
A breakout from a three-four day consolidation in a very narrow range results in sharp three day
move.
Faster moves start from third of fourth higher bottom. It will be strong move if there is space
between the third or fourth bottom and the previous top.
Trend and trend following techniques: In fast advancing markets, in the last stage of the campaign,
reactions get smaller as stocks work to higher level, until the final run has ended. Then comes a
sharp reaction and a reversal in the trend. Same happens in the bear market. Once you are
convinced that a trend is in force, do not wait too long to go with the trade. Early in the trend
buy/sell a stock which is already strong/weak. Fast moves generally come from bear market
bottoms. These moves usually run three weeks up, then move sideways three to five more weeks,
and then accelerate followed by another sideways movement. Under fast moves the first signal to
trend change is overbalance i.e. reaction gets larger compared to the earlier ones, specially in the
fifth wave. Watch the changes in momentum of price - is the market/stock gaining less points in
more time? If the market is trending up, then it should go up more time than it goes down. And vice
versa.
Any reversal pattern should be seen in conjunction with the time cycles. Do not pay attention to the
financial press.
Use simple trading filter of not entering the market on the third day of the move.
TREND TRADING IS PROFITABLE TRADING!
The basic tool for the manipulation of reality is the manipulation of words. If you can control the
meaning of words, you can control the people who must use the words. Philip K. Dick

Gann's 28 Trading Rules

The Rules given below are based upon W. D. Gann's experience :
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.

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 (...), raise your stop loss order
so that you will have no loss of capital.
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 two or three 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 time 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 of 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 folllowing 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.