We are putting the final touches on Version 6 Beta 8. It has been a long month. We were pushing out the beta software approximately every two weeks. However, this time, we slowed down for five weeks between beta releases. We got feedback from a several users that we needed to make the changes they requested. This will be our last beta before we ship the final release. Our current plan is to: 1. Ship Version 6 beta 8 and get our users feedback. 2. Finalize and ship Version 6 to new users from the web site. 3. Build the migration wizard for our version 4.2.5 to bring their existing data into the new Version 6 database. 4. Migrate our existing users and ensure they are operational. 5. Continue improving the tools to help you in your trading. A simple plan, but it will take us months to get through this simple plan. Our beta testers will have the software this week (2012-04-16) and the new version will ship within a few weeks depending on their feedback. We took our time on this release, but we were certain we never wanted to ship a half backed solution. We are here to help you in your business, not to do one-time sales. Happy Trading! William
What’s your name? Dr. Barry Burns What is you website address? http://www.TopDogTrading.com Can you give us a little bit of background about how you got involved in Trading and what led you to become such an expert? I was a businessman and owned several small companies over the years. When I decided to make a career change I did a lot of research to find the perfect career for me. It had to be something with enormous income potential. But I also wanted time and travel freedom – to be able to work when I wanted, where I wanted and only when I wanted. Finally, I was pretty burned out on always catering to customers needs. I wanted true independence. When my due diligence was complete, there was only one choice left standing: Trading! My dad was a stock trader for 70 years before he passed away. So I had grown up with it in the household and my dad had taught me some things when I was a kid, but at the time I was more interested in karate and girls. When I realized that trading was the perfect career for me, I started looking into it again and things had changes dramatically since I was a kid living at home. Electronic Trading was just coming on the scene and it was a very exciting time. The average person was more empowered to compete with the big boys. I joined a local trading club and read every book I could get my hands on (over 100 eventually). And when I was ready to make the commitment to become a full-time trader, I called my dad and asked him to mentor me again. He agreed and I moved back in with him for a short time to become his student. After that I put a lot of screen time in, and later found 3 more mentors who were willing to work with me. One of them was a floor trader in Chicago. How long did it take to you to become really become proficient at Trading? I went through years of being successful for a while and then losing again. In fact I found that just as there are cycles in the markets, there were cycles in my own behaviour and my trading method. Learning that cycle helped me be aware of when I was in a down cycle and to stop trading. People focus on trying to control the markets, but that’s impossible. What they really need to do is learn to control themselves. The owner of our trading club said in his experience it takes people at least 4 years to become a professional trader. I’d say that’s about right, although it varies dramatically from person to person. What markets do you trade? Is there any reason for choosing them? I swing trade and day trade. I had started trading stocks simply because that’s what my father did. Now I also trade futures, currencies and options. For years I was afraid of the leverage of these other instruments, but now that I’m better at managing my risk, the leverage allows me to make so much more money. Primarily I swing trade stocks and ETFs and day trade futures and forex. Would you view yourself as a fundamental or a technical trader? If both what percent to give to each? I’m close to 100% technical trader. That’s all I look at. If I hear some good news regarding the fundamentals of a company, I may look at the company, but when I do, I’m looking at the company’s chart. Are you more a systematic trader or discretionary trader? My trading rules are extremely objective. Anyone trading my rules precisely would be trading the same way. However it’s just a fact that people who master any skill or profession incorporate a lot of their experience into their subconscious. It’s natural and unavoidable. It’s like the master saying to the kid “I’ve forgotten more than you’ll ever know.” What the master has “forgotten” is not in his/her conscious mind, but that information is still at work in the subconscious influencing what they do. Are there any specific strategies that you trade? Can you provide any details of them? My strategy is very objective and scientific. I look for 5 market “energies” to align in the same direction and at the same time. The alignment of these energies creates a probability scenario that favors my position. It’s my edge. It’s what puts the odds on my side. Those 5 energies are: 1. Trend (direction) 2. Momentum (trend strength) 3. Cycle (timing highs and lows for entries/exits) 4. Support Resistance (blockage to energy) 5. Fractals (looking at the bigger picture or scale) If you are in a take-profit situation and your system is telling you to exit rather than hold on, how do you bring yourself to exit even if it’s still running in your favour? Most of the time I exit with hard limit orders. They are placed before those levels are reached. I let the market take me out rather than depending on myself to make a split second decision and risk hesitating. How do you react to the winning and losing streaks? Winning and losing streaks are a natural part of trading. They are part of the “cycles” inherent in the market. The key is to have stop losses in place to minimize your draw down. Just as I place a hard stop loss in every trade I execute, I also have stop losses based on a percentage of my account for every day, every week, every month and every quarter. If my daily stop loss is hit, then I stop trading for the rest of that day. If my weekly stop loss is hit, then I stop trading for the rest of that week. If my monthly stop loss is hit, then I stop trading for the rest of that month. Likewise, I have trailing stops that work the same way. If I’m in a trade and I’ve made a lot of money, I’m not going to allow that trade to turn into a loser. I’m going to put in a trailing stop on that trade to make sure I lock in some profits if the market turns against me. So too, I have trailing stops for every day, week, month and quarter. If I’m up a certain amount in a day, and then I start losing money. I have a daily trailing stop that won’t allow me to give back all my profits for the day. If that daily trailing stop gets hit, then I stop trading for the day. The same principle applies for the week, month and quarter. This is one aspect of money management that is critical and I don’t see many traders utilizing it. What is the most important part of that discipline? What is your golden rule? The most important thing is to keep my losses small. Not all my trades are winners. But if I can keep my losses small, then I can keep trading until the big move comes along and I catch it. To do this, you must be very picky on your trades. The #1 sin for most retail traders is over trading. My opinion is that the market is mostly a random walk. But periodically things line up to give you a high probability trade. It’s not a predictable trade as the market is never predictable. But it is a probable trade. For me, this is when the 5 energies align at the same time as mentioned earlier. The key is to be patient and wait only for those times. Let the retailers (amateurs) over trade. We stand on the sidelines and watch them chop up their trading accounts and wait patiently for the real opportunities. There are plenty of good opportunities. My slogan is to take “fewer, better trades.” What kind of risk do you take on a position? When if ever would you increase this risk? On a chart I only risk a bar to a bar and a half on my trades. So my risk is small. And even when my trades don’t succeed, I’m usually not even losing that much because of the way I manage the trade. My rule is to keep my risk on each trade to no more than 2% of my account. How do you handle your position sizing for each trade? My rule is to risk the same dollar amount on each trade, so I adjust the number of shares/contracts to match that dollar amount. What do you consider are the characteristics of a successful trader? Psychology is the most important thing. I think the Mark Douglas books are excellent and should be required reading by everyone. I would highly recommend his books “Trading in the Zone” and “The Disciplined Trader.” If you had one secret to give about Trading, what would it be? There is no one secret, but I have several slogans I live by. I’ve been around trading for so many years now and heard so many things that I forget where they all come from, but they may be from Mark Douglas. My favorite trading sayings are: 1. Successful trading is simply a business of not making mistakes. 2. The consistency you need is in your mind, not in the market. 3. Be like the Jaguar – crouching perfectly still, waiting for the setup to come to you, then pouncing without hesitation or thought. You only need 1 to feed the family. The first two are about learning to discipline yourself, which is the key. Becoming a master trader is not about mastering the markets, it’s about mastering yourself. The last one is about over trading. Any further comments you would like to add? If any of your readers would like to learn more about my trading methodology, I’ve put together a free 5-day video course which they can have by going to: http://www.TopDogTrading.com/free_course.html I would personally like to thank Dr. Barry Burns for taking the time to reply and provide some insight into his style of trading. James Ramsay Visit www.otrader.com.au for more interviews and a Free 20 trial of our Stock and Option Portfolio management Software
Q. What’s your name? Gary Tanashian Q. What is you website address? http://www.biiwii.com Q. Can you give us a little bit of background about how you got involved in Trading and what led you to become such an expert? Well, I think expert is a strong word because I don’t believe anyone ever masters trading. I have some things that work for me much more often than not however. As for my background, it is actually in business as the owner of an American manufacturing company where I developed an interest in macroeconomics while niching the company’s successful place in the world. From macroeconomics, I began looking at market sectors and the stocks therein. I do not trade stocks exclusively on technicals, even though TA is probably my strongest area. A given sector must be in alignment with my view of the macro landscape. This helps me be a strong holder when necessary. I find I would be a weak hand when holding something for purely technical reasons and frankly do not have the time to baby sit positions. So also you can gather that I am more of a swing trader than flipper. Q. How long did it take to you to become really become proficient at Trading? About four years. The bear market of 2000-2003 taught me that I was good at market timing; trading those huge bear rallies and declines. It was like a meat grinder, but it got me attuned to the market’s rhythm. Q. What markets do you trade? Is there any reason for choosing them? At this moment, the gold market. Specifically the gold miners. The reason is simple, the gold stocks as represented by the HUI and the EFT GDX, are making what I believe is a historic bottom. I am not necessarily bearish the US Dollar as measured in competing currencies, so I am not like the gold bugs who can tend to have an us against them mentality. What I see when I look at gold’s ratio to oil, to industrial metals and to human hopes for prosperity is hockey sticks! Just like what the USD did in October. The same forces that drove up the Dollar drove up gold’s ratio to gold miners’ cost inputs! It is the play of year and likely the start of a new bull markets. I am also bullish broad markets for an extended trade, not due to fundamentals but rather due to technicals and historically bad sentiment. Q. Would you view yourself as a fundamental or a technical trader? If both what percent to give to each? Fundamental 40%, technical 60%. Q. Are you more a systematic trader or discretionary trader? Definitely a discretionary trader, using a good dose of instinct. Q. Is there a certain instrument that you like trading? I.e. options, shares, warrants, CFD’s, futures, forex? I mostly trade shares and once in a while a few puts and calls. Q. Are there any specific strategies that you trade? Can you provide any details of them? I am a bottom feeder, pure and simple. I see an inverted head and shoulders or massive falling wedge with bullish divergence by indicators like MACD and RSI I get very interested. I will also look for trend by AROON and confirm with Wm%R and when I see several indicators hinting at reversal, see a bullish pattern and some clear support and resistance points all showing a confluence toward a given outcome, I then pay close attention. But I must be on board with the fundamentals as well. If you are in a take-profit situation and your system is telling you to exit rather than hold on, how do you bring yourself to exit even if it’s still running in your favour? I do not have seller’s regret. Well, maybe just a little. But it comes with the territory and emotion should not be part of the equation. Q. Do you or your systems trade every single day? No. Q. How do you react to the winning and losing streaks? Even keel. Act like I have been here before. The market can be very humbling so I may as well make an attempt at humility on my own before it is forced down my throat. Q. What is the most important part of that discipline? What is your golden rule? Keep that emotion contained. I am not the genius I think I am and I am also not as dumb as some trades have made me look. If you show up with a brittle ego, you are done. Q. What charting systems do you use? I use stockcharts.com. I really do not watch live charts that come with my trading platform. Again, I try not to micro-manage positions. Q. What news/broker services do you use? None, except as contrary indicators. Q. What portfolio management / trade tracking software do you use? Fidelity Active Trader Pro Q. What kind of risk do you take on a position? When if ever would you increase this risk? It varies. Throughout the bull market from 2003 to 2007 I was pretty pleased with the fact that I managed risk at ALL times by generally keeping a 50% plus cash position and still doubled the bull market’s performance consistently over that period. As a bottom feeder, I will increase risk at a time like now for instance, when the crowd is frightened. Of course the opposite holds true as well and when the herd gets over confident, I decrease risk. Q. Do you use stop losses and things like that? Very rarely. Q. How do you handle your position sizing for each trade? It varies. I generally have many positions and each position is weighed against the overall portfolio. What was your best trading day/week/month? What was going through your head? I am sorry, I cannot recall to that level of specificity. But I will tell you what was going through my head; I just KNEW I was a genius, so I sold a bunch of stuff before the market taught me it wasn’t true. Q. What do you find so good about Trading and the markets? It allows me to match up against a massive, emotional and sometimes very predictable collection of other human beings. It allows me to practice something that comes pretty natural for me, a contrarian outlook. Q. Do you remember your very first major trade/win? No. Q. Can you recall your worst trading day? How did you deal with it? Yes, I was on my way to get a root canal. I checked the market in the waiting room on my Treo phone. They called me in and I told them the procedure would be a welcome change from the day I was having. Q. What do you consider are the characteristics of a successful trader? 1) Keep emotion out of it. 2) Keep emotion out of it. 3) Keep emotion out of it. Q. If you had one secret to give about Trading, what would it be? Keep emotion out of it. Q. Any further comments you would like to add? Thank you for the opportunity to give one trader’s view. I realize there is a lot of sharp people out there with good systems that work more often than not. My thing is basically just a good b/s detector, a firm view on sector fundamentals and charts. I am actually quite simple as a trader compared to some folks who have really gotten this down to a science. I would personally like to thank Gary for taking the time to reply and provide some insight into his style of trading. James Ramsay Visit www.otrader.com.au for more interviews and a Free 20 trial of our Stock and Option Portfolio management Software
I just had a new user ask how to enter an option trade into OTrader so I made this video to show him (you) how it is done.
#1 Additional Income Writing covered calls can provide you with an ongoing stream of income from the option premium. This is particularly important when stocks do not pay dividends or pay very small dividends. The call option premium can also substantially increase total returns in flat or slower growth stock markets. #2 Income paid up-front The income from writing covered calls in credited to your account the next day, creating immediate cash flow that can be reinvested, withdrawn from cash management accounts or used to pay interest on margin loans. Since the call option premium is paid up front it can be reinvested to enhance the total return of your portfolio. #3 Predetermined Return In a rising market, the immediate return from call writing can be evaluated prior to initiating the investment position. You will know what the call writing income will be and the maximum additional capital appreciation you may expect from your shares. Covered Call Portfolio Management Software The Trader’s alternative to MYOB, Quickbooks and Excel. Get your FREE 20 day trial of OTrader Investment Portfolio management software for stocks, options and warrants. #4 Risk Reduction If a stock declines in price,(Not that they ever do that…) the call writing income will help to offset some or all of the capital loss. Writing covered calls will provide some downside protection when stock decline in value. #5 Cash Dividends As a writer of covered calls you will continue to be entitled to cash dividends so long as you own the shares. Beware dividends can lead to early exercise though. #6 Novation Exchange-listed option contracts like shares, are interchangeable with another contract with exactly the same expire month and strike price. This is known as ‘novation’. This enables the covered call option to be initiated through a ‘sell to open’ order, but also to close out the position if desired through a ‘buy to close’ order. Got a question about covered calls? Let me know.
With the current market volatility now is a good time to brush off those options strategies. My personal favorite is the Iron Condor which is made by using a bear call spread and bull put spread. With the Iron condor we are looking to sell time and volatility. We look to sell options with a > 75% chance of expiring worthless. The Options Probability Calculator will help you determine which options have a > 75% chance of expiring worthless. In the coming weeks I will be releasing my report of how I trade Iron Condors. It is an eight step check list for opening and closing the spreads each month. Let me know if you would like a copy.
Risk to reward ratios. If there is a cornerstone to any trading philosophy, it starts at the risk to reward table. Although identifying good risk/reward trades does not guarantee success, not identifying good risk/reward trades almost always guarantees failure. Let’s explore yet another important subject in the life of a trader and look at a trade setup we took late Friday in the context of this subject matter.
Determining a Good Risk/Reward TradeContrary to popular thought, successful traders can take on any type of trade in terms of size and risk as long as they first understand the implications of the trade and are willing to stomach the losses should they occur. If a trader feels that they have the hot hand, they may choose to press a bet (to make a larger than normal purchase or sell on the belief that the odds are in their favor). They do this knowing that they may suffer greater than normal losses if the trade doesn’t pan out. Traders do this all the time. It is critical, if you are to be successful, to understand that trading is a game of probabilities. Technical traders are simply looking for patterns with a greater than 50/50 chance of repeating themselves over and over again. Once such patterns are identified, traders attempt to recognize such patterns in current charts and then identifying entry and exit points based on those charts. Entry and exit points are typically associated with support and resistance areas of the charts. Ah, support and resistance areas. These were the tools of the early traders, traders that read the tape … traders that were successful at technical analysis long before the advent of all these derivative indicators, these answers to the problem of technical trading, this onslaught of technical wizardry. The oldest and purest form of technical analysis is support and resistance. Understanding it provides a large portion of the technical analysis that one needs to be successful at identifying entry and exit points.
Calculating the Risk/Reward TradeIn previous chapters we have talked about the need to identify potential trades based on chart patterns. The idea is that you collect a set of candidate charts, charts that have positive prospects for immediate or reasonably near term trading time frames. It is with these candidate charts that one can dig deeper into the possibility of trading that particular issue. The identification of a probable trade centers around the proper identification of realistic entry and exit positions based primarily on support and resistance. Once you have properly identified the support and resistance points you can take those numbers, plug them into a simple spreadsheet and calculate the risk reward. The simplest form of calculation involves nothing more than the following
- Entry Price
- Stop Loss Target
- Stop Profit Target
- The resulting Risk/Reward Ratio
Ranking Trades and the SpreadsheetTo see if a potential play is worth wagering money on, one must determine what the potential losses are if your analysis is wrong, and what the potential gains are if the analysis is correct. You should always shoot for a minimum of 2:1 ratio, that means that your potential profit should be roughly 2 times your potential loss. This is a rule of thumb that many traders use … especially the good ones. In the example above, if one enters a trade at the price of $29.12 with a define stop loss exit of $30.68 and a potential target exit for profits at $26, then the ratio is roughly 2:1 (a bit less in this case). That’s it. It’s really that simple. Recognize that once one has entered such a formula into a spreadsheet and begins using it, one can easily play with the numbers to make them work. For example, let’s say that NEM looks like a great short right now, but that the exit is really $31, not $30.68. Now, one could stretch the target to $25 even though the support lies at $26 in order to justify the trade, but the trader inside you knows this is not the case. When setting support and resistance points, one has to realize that if the numbers are fudged, the person fudging the numbers is the one hurt. It’s their money that’s on the line. An easy way around the temptation of making the numbers work, is to always look at the support and resistance points first and allow as much slack in the numbers as makes sense. Now, plug in the entry price. Does the risk/reward make sense? If it doesn’t change the entry price, not the stop or target prices. Jiggle the entry price to the point where it makes sense and then simply wait until you get that entry point or pass the trade up. There are always more fish in the pond. Once a number of potential trades are identified, the next step is to take a position in the trade. It is important to realize that no trade is a certainty as they are all probability based. The likelihood of success and failure can be quantified to some degree based on certain risk factors. By quantifying the risk factors and ranking the potential trades based on these risk factors, one can take a systematic approach to trading … an approach that can pay huge dividends. This is a laborious process that takes time and organization. The simplest way to organize this is via a spreadsheet. Since spreadsheets can contain simple arithmetic equations, you can easily build equations to compute the risk factors described below. When first experimenting with trade rankings, one should error on the side of simplicity as having too many factors is no better than having any at all. So how can you begin to construct a ranking system that allows you to increase your reward and reduce your risk? It’s not so much difficult as it is tiring. Looking back, you must first screen a large number of stocks and then flip through a large number of charts looking for technical patterns that have potential. The primary technical indicators you are interested in are those that have the highest percentage of success. Edwards and Magee go to great lengths to point out all types of technical trading patterns in their bible of technical trading, Technical Analysis of Stock Trends . The obvious factor when ranking trades is to balance the risk versus the reward with the idea that the higher the reward relative risk to the risk, the higher the probability over time that you will make money. The simplest way to calculate the risk to reward ratio, is to pick an entry price for a given stock and then ask yourself, where would you have to consider exiting the stock if it turns out that you are wrong on the trade. For the reward, you ask yourself the same question but the exit is associated with your having a winning trade. Based on how many shares you intend to trade, you can calculate the amount you will loose and the amount you will win. Don’t forget to add in your transaction costs as part of this. This is the fundamental basis of all ranking systems. From there, you can begin to add other variables such as, how long do you expect to be in the trade. The shorter the period of time relative to the risk/reward, the more money you can make over time (assuming you win more than you lose). As your refine your ranking system you will find that stocks with higher betas are naturally more susceptible to short trading periods given their volatility. Another key variable is a confidence factor. The confidence factor itself if typically based on several factors such as the probability that the technical picture is favourable, the probability of the market contributing to your individual stocks success. Regardless of the factors you experiment with, it is important that you keep your data available for study over time so that you can continue to refine your system. Without constant scrutiny, your ranking system can loose it’s value overtime as the markets are dynamic and always changing.
Embellishing the FormulaOnce one has mastered the use of the simplest formula for risk/reward, one can consider embellishing the formula to include other criteria. For example, if one could reasonably judge the amount of time it takes a trade to play out, then that knowledge could be incorporated into the spreadsheet in order to rank the trades on a more favourable basis. Think about it. There is only so much capital to use when trading. Using that capital on the highest potential return over some period of time is the desire. Another key element of gaining the highest potential return on ones money is to associate a confidence factor into the equation based on the stock, the technical pattern being traded, whether the trade is in the direction of short, intermediate and long term trends, etc. Again, there are a number of factors that can be added to the formula to rank the trades and use that ranking as a basis for decision making. The desire is to remove some of the gut feeling that goes into trading with a more logical and less emotional process.
Analyzing the ResultsAnother advantage of plugging numbers into a spreadsheet s that one than then have a historical accounting of trades taken be they successful or not. Keeping ones historical data allows later analysis of that data in order to improve ones performance in the future. For example, examining historical data to determine where the largest losses were and then deciding if they were because of failed stop exits could provide fruitful insight to changing trading behaviours. The same is true for wins. Another exercise would be to look over the charts a month after the trade and examine other data points for exits (both success and fail exits). In doing this, one could speculate on what if scenarios such as, “What if I had maintained the position longer. Would it had continued to perform or would it have turned into a bust?”. The imagination can run wild with such scenarios and if you are like most, the amount of time available to ones research is limited to the minimum analysis of old trade data, but there is value in it. It has been said that if mankind doesn’t understand the mistakes of the past then we are doomed to repeat those mistakes in the future. Dwelling on the past is not the issue, but learning from it does have benefit. The game of trading is a lonely game. In today’s world it is, for the most part, a game of solitaire where individuals from all walks of life stare endlessly at flickering screens while moving piles of money around. One has to show the motivation to sharpen their game as no one else will. As we all know, if one is not on top of your game, at least in this game, one doesn’t last long.
SummaryAlways calculate your risk to reward ratio prior to making a trade. Refuse potential trades unless the risk to reward ratio is 1:2, that is for every dollar risk, there is a potential for two dollars in return. By calculating your risk to reward for every trade you will ignore marginal trades and you will identify your exit points before taking a trade. Recognize that you want to understand your exit criteria … at the beginning of the trade, not sometime later. Once you are comfortable with simple risk to reward measurements and are identifying support and resistance zones reasonably accurately, you can consider increasing the complexity of your formula to consider other variables such as time and confidence. Lastly, keep your data points and analyze your successes and failures over time in order to hone your trading strategy. Article written by Technical Analysis Today – www.tatoday.com
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 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 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 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 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.
D. Wyckoff Editor of the Ticker Magazine writes… O ne of the most astonishing calculations made by Mr. Gann was during last summer (1909) when he predicted that September wheat would sell at $1.20.This meant that it must touch that figure before the end of the month of September. At twelve o’clock, Chicago time, on September 30th (the last trading day) futures were selling below $1.08, and it looked as though his prediction would not be fulfilled. Mr. Gann said, “If it does not touch $1.20 by the close of the market it will prove that there is something wrong with my whole method of calculation. I do not care what the price is now, it must go there”. It is now history that September wheat surprised the whole country by selling at exactly $1.20 in the very last hour of trading, closing at that figure. During the month of October, 1909 in 25 market days, Mr Gann made in the presence of our market representative 286 transactions in various stocks on both the long and short sides of the market. 264 of these transactions resulted in profits, 22 in losses. The capital with which he operated was doubled 10 times so at the end of the month he had 1000% on his original margin. Mr Gann has refused to disclose his method at any price but to those who are scientifically inclined he has unquestionably added to the stock of Wall Street knowledge and pointed out infinite possibilities. One of Gann’s Most Remarkable Forecasts was in the year of 1928 – In November W.D. Gann issued an annual forecast predicting the end of the great bull market in stocks for September 3, 1929, and the greatest panic in history to follow. We quote from this forecast,”September – one of the sharpest declines of the year is indicated. There will be loss of confidence by investors and the public will try to get out after it is too late. Storms will damage crops and the general business outlook will become cloudy. War news will upset the market and unfavourable developments will occur in foreign countries. A ‘Black Friday’ is indicated and a panicky decline in stocks with only small rallies. The short side will prove the most profitable. You should sell short and pyramid on the way down.” End of R.D. Wyckoff’s Comments Many newspapers commented on the accuracy of this forecast. History proves that the stock market topped on the 3rd September, 1929 at 386. Gann continued to trade and study until his death at 77 years of age in 1955 after accumulating an estimated $50 million. Gann’s system is highly complex and a lot of his writings were veiled in secrecy. He used a combination of methods to determine future trends of the markets which included:- 1. Resistance levels made by market fluctuations 2. Natural resistance levels in squares and the 360 degree circle 3. Geometrical angles 4. Time cycles and time periods 5. Squaring out price with time from tops and bottoms 6. Odd and even squares and the halfway points between both odd and even squares 7. Weekly high and low charts, angles that form on it 8. Monthly high and low charts, angles that form from tops and bottoms 9. Natural time cycles based on the 360 degree master chart 10. Time and price using the square of 9 and 12 charts 11. Seasonal tendencies 12. Market patterns.
If you had been a businessman travelling across Texas in 1891, you might have bought a newspaper and a couple of cigars from a tall, lanky 13-year-old selling them on your train. And as you talked with your fellow travellers about investments, you might have noticed the youth eavesdropping intently on your conversation. If you had asked him, the boy might have told you his name was Willy and, yes, he was interested in commodities. His dad was a farmer in Angelina County , and just about everyone he knew was as well. They were all concerned about the price their cotton would bring. And had you inquired whether young Willy also wanted to till the East Texas soil when he got older, he might have said no, he didn’t think so: he wanted to be a businessman. “Well, good luck, young Willy,” you might have said. “Maybe you’ll have your own business some day, maybe you’ll even be famous. Who knows? No one can predict the future.” The young eavesdropper going up and down the aisles of that train was William Delbert Gann. Was it really true, he might have wondered, that no one can predict the future? W. D Gann was born on a farm some seven miles outside of Lufkin , Texas , on June 6, 1878. He was the firstborn of 11 children two girls and eight boys of Sam Houston Gann and Susan R. Gann. The Gann’s lived in a too small house with no indoor plumbing and with not much of anything else. They were poor, and young Willy walked the seven miles into Lufkin for three years to go to school. But the work he could do on the farm was more important to the family, so W. D. never even graduated from grammar school or attended high school. As the eldest boy, he had a special responsibility, and those years working on the farm may have been the beginning of his lifelong dedication to hard work. His religious upbringing as a Baptist may also have had something to do with it, for his faith stayed with him throughout his life as well. A few years later W.D. worked in a brokerage in Texarkana and attended business school at night. He married Rena May Smith, and two daughters, Macie and Nora, were born in the first few years of the new twentieth century. W.D. made the fateful move to New York City in 1903 at the age of 25. Working most likely at a major Wall Street brokerage, W.D. made other changes in his life as well. He divorced his Texas bride and in 1908 at the age of 30 married a 19-year-old colleen named Sarah Hannify. W.D. and Sadie had two children–Velma, born in 1909 and W.D.’s only son, John, who arrived six years later. In addition, Macie and Nora came to live with their father and were raised in New York by their Irish stepmother. During the First World War the family moved from Manhattan to Brooklyn first to Bay Ridge, then to Flatbush. W. D. reportedly predicted the November 9, 1918 abdication of the Kaiser and the end of the war. But it was after the armistice that the fortunes of the Gann’s of Brooklyn took their most dramatic turn. The W. D. that traders know today emerged in the Roaring Twenties. In 1919 at the age of 41, W. D. Gann quit his job and went out on his own. He spent the rest of his life building his own business. He began publishing a daily market letter, the Supply and Demand Letter. The letter covered both stocks and commodities and provided its readers with annual forecasts. Forecasting was an activity with which W.D. had become fascinated. The young business prospered, and three years later W.D. Gann became a homeowner, buying a small house on Fenimore Street in his adopted home of Brooklyn. The market letter led to more ambitious publishing. In 1924 W.D.’s first book, Truth of the Stock Tape, was published. A pioneering work on chart reading, it is still regarded by some as the best book ever written on the subject. An individualist and ambitious hard worker, W.D. self-published Truth through his new Financial Guardian Publishing Company. He personally wrote his own ads to market it and negotiated with bookstores to carry it. ‘Truth was praised by The Wall Street Journal and sold well for years. Some consider it the best of his many books. For a first effort it was a significant accomplishment. His market forecasts during the twenties were reportedly 85 percent accurate. But W. D. didn’t confine his prognostications to prices. It was widely reported he predicted the elections of Wilson and Harding and, indeed, of every president since 1904. At age 49, W. D. Gann wrote what is perhaps his most unusual book, the 1927 Tunnel Thru the Air. It is a prophetic work of fiction, not a genre every Wall Street analyst dabbles in. But W.D. Gann was one of a kind. The book is perhaps best known for having predicted that attack on the United States by Japan and an air war between the two powers. Though Tunnel may have had little to offer investors, it was well-publicized and enhanced its author’s growing reputation. The market in the 1920’s seemed to be defying the law of gravity, but W.D. Gann didn’t think it could last forever. In his forecast for 1929, he predicted the market would hit new highs until early April, then experience a sharp break, then resume with new highs until September 3. Then it would top and afterward would come the biggest market crash in its history. We all know what happened. W. D. Gann prospered during the Depression, which he predicted would end in 1932. He acquired seats on various commodities exchanges, traded for his own account, and wrote Wall Street Stock Selector in 1930 and New Stock Trend Detector in 1936. He continued making remarkably accurate forecasts as well as some less successful ones like the electoral defeat of FDR. He developed a new interest in investing in Florida real estate. He became a small-scale home-builder in Miami as well as the owner of a block of stores on the Tamiami Trail. He also became airborne. He bought a plane in 1932 so he could fly over crop areas making observations to use in his forecasts. He hired Elinor Smith, a noted 21-year-old aviator, to fly him around. The novelty of his high-flying research–W.D. was the first to study markets in this way–helped keep him in the spotlight. W. D. Gann’s son John Gann also went into the securities business in 1936 at the age of 21. A year later he went to work for his dad until in 1941 his Uncle Sam announced he had plans for the young man in Europe . Back in Brooklyn , Sadie had health problems for some time and died at age 53 in 1942. Then after 20 years on Fenimore Street , an aging W.D. Gann moved to Miami for reasons both of health and personal preference. His How to make Profits in Commodities came out the same year. He kept his business in New York , relying on his long-time personal secretary. In Miami he continued studying the market, trading, real estate investing, and instructing students. The next year at the age of 65, when most are thinking retirement, W.D. decided he’d get married and did, to a much younger woman. Son John worked on W. D. Gann’s business in New York briefly after the war, then left to pursue his own interests in the Industry. The two differed in their approach to the market. John L. Gann pursued a successful lifetime career with Wall Street’s major brokerage house until his passing in 1984. The post-war years saw Gann start taking it easier. He published 45 Years in Wall Street in 1949. He sold his business to Joseph Lederer, a fellow student of the market. Around the same time he also separately sold the rights to all his books to Edward Lambert. He continued, however, to study, teach, and trade. He was made an honorary member of the International Mark Twain Society in 1950. In 1954 he suffered a heart attack. A year later advanced stomach cancer was discovered. The doctors operated, but W. D. Gann failed to recover. He died in June, 1955, at the age of 77. He was buried with his second wife in Green-Wood Cemetery in Brooklyn at a location that looks toward Wall Street. It was a fitting location since he had studied the Street all his adult life. In 1995, 40 years after his passing, William D. Gann is still talked about, written about, and studied avidly. It’s an extraordinary testimonial to his work and one that even W.D. couldn’t have predicted. Or could he? What lessons might there be in this remarkable man’s life? First is an affirmation of the American Dream. William Delbert Gann of Lufkin , Texas , started with nothing. He and his family had no money, no education, and no prospects. But less than 40-years after overhearing businessmen talk on railroad cars in Texas , W.D. Gann was known around the world. Second, hard work pays. W. D. Gann rose early, worked late, and approached his business with great energy. Virtually all his education was self-administered. This teacher, writer, and prescient forecaster had a third-grade formal education. But he never stopped reading. Third, unconventional thinking may have its merits. W.D. was intellectually curious to an extraordinary degree. He was unafraid of unorthodox ideas, whether in finance or in other areas of life. He wasn’t always right–none of us are–but he dared to pursue a better idea. Fourth, there may be something to that clean living business after all. A conservative Baptist, W.D. didn’t smoke, drink, play cards, or dance. He was serious in demeanour and a conservative dresser, although he lightened up somewhat in his later years. He respected the value of a dollar and was prudent in his personal spending. Not every internationally acclaimed seer would continue to live in a modest house in Brooklyn . Fifth, faith helps. W. D. Gann studied the Bible all his life. It was his Book of Books. His own last book, The Magic Word, published in 1950, strongly reflects this devotion. And finally, the only lesson for traders I will venture to offer is W.D. Gann never stopped studying the market. Even after his forecasts happened, even after he achieved international acclaim. Although he believed in cycles, he also knew that markets are always changing and that decisions must be made based on today’s conditions, not yesterday’s. W.D. might have rested on his laurels. But he kept studying and seeking greater understanding. If he couldn’t afford to stop, can any trader afford to do so? John L. Gann, Jr., is the grandson of William D. Gann. Most of the information in this article comes from W.D. Gann’s son, the late John L. Gann, to whom this article is dedicated. The information herein is believed to be correct but no assurance of accuracy is offered.