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 Not every trade that you make will be a winner. But the goal of trading is not to be perfect. The goal of trading is to make money! By following these tenets and properly managing your trades from beginning to end, you will obtain the skills necessary to be consistently profitable because you will be functioning within a money-management system focused on preserving capital.
+**7. Bringing It All Together**
+Exploring Gann’s Examples
+Looking at my own copy of How to Make Profits Trading in Commodities, the first 63 1/2 pages are pure text, outlining the trading methodologies and rules. The rest of the book, through 412 pages, primarily illustrates examples of the tenets presented in the earlier chapters. Gann moves from wheat to soybeans through the rest of the commodities, giving specific examples of the rules in action.
+In earlier works, such as Truth of the Stock Tape and Wall Street Stock Selector, Gann did include charts within chapters as he wrote and simultaneously analyzed them. However, in the Commodities book, the charts corresponding to each explanation are not located right up against the detailed wording. Through my years of study, this led me to think that Gann wanted me, the reader, to apply the words to the chart action myself, marking up my own chart to understand the rules at hand. In the end, when a trader goes to apply the rules, it is to the chart itself, so why didn’t Gann mark the charts with the comments directly? I believe it’s because he understands the power of practice in learning trading rules, and the simple fusion of the word description and the chart is the first step toward understanding what he set out to explain.
+The 1940–1941 Soybean Trade
+My father took this belief out a step by having me study one particular example of Gann’s work over and over and over again: an example of a trade on soybean futures from the Commodities book. The original chart is located in Appendix D, “Gann’s Soybean Chart.”
+One page 134, the relevant section begins as follows:
+TRADING EXAMPLES—Soy Beans—August 20, 1940, to October 16, 1941. See chart in back of book covering one- to three-day moves and volume of sales and open interest.
+Note the mention of volume of sales and open interest. Gann doesn’t refer to these in the trade example, as you’ll see, but he obviously believed they were important. As you get a handle on the buying and selling points presented in this example, as well as the ones previously explored, adding volume and open interest to your charts will become invaluable.
+Returning to Gann’s writing, he goes on to say:
+These are examples of what could have been done by trading according to the rules. It is not my intention to lead anyone to believe that any average human being would get results of this kind, regardless of how well they understood the rules. The reason they would not buy and sell and make large profits of this kind is the HUMAN ELEMENT, which causes a man to act too often on hope and fear, instead of facing facts and following rules.
+Gann is telling the reader that no “average” human being is destined to reap these results simply by following rules—something else will come into play. I understand “the HUMAN ELEMENT” to be any and all emotions that are grounded in hope and/or fear. Therefore, I believe that Gann is not saying that these results are unattainable; I believe he is saying that a human being who has mastered his reactions to emotions based on hope or fear is the type of person capable of achieving these results.
+Moving forward to the actual trade analysis, Gann translates each glance at the chart into one line of text. I found that the best way to capitalize (educationally and, therefore, monetarily) on this setup was to do the following: After finding the chart that corresponds to the text, I used a large paper clasp to collect all the pages in between, to allow for easy flipping back and forth, from the trade descriptions to the actual chart. I have found this to be extremely helpful in matching more of Gann’s verbal descriptions to the actual charts.
+Back to finding the charts, when reading verbal descriptions of Gann’s trade examples, it was natural to want to look at the actual chart while reading. However, instead of finding direction to the page number within the text, I had to return to a listing of charts that is an extension of the table of contents to find the correct chart. For this soybean example, when I finally found the chart for the first time, I wondered, “Why didn’t Gann just refer to the page or chart number to begin with?” One answer is that he might have been unsure of how the charts would be numbered until he’d finished writing the book, and he could not go back to the text to mark references to aid the reader when searching for charts. Another possible answer is that he purposely left out the references so that the reader would have to scan the listing of charts to find the specific one he needed (in this case, “Chart No. 18—Soy Beans 1940 to 1941”).
+Returning to the text, the first set of trade actions reads:
+—August 20—May Soy Beans, LOW 69C. The reason for buying was a triple bottom.
+We start with a capital of $1,000 which will margin 5,000 bushels of Soy Beans at 20c per bushel.
+Bought 5,000 May Soy Beans at 70c, placed stop loss order at 66.
+Risk limited to $200 and commission.
+Gann says the signal was a triple bottom. However, flipping to Appendix D, you can see that there is no illustration of a triple bottom—only a line drawn just below the 70 horizontal marker. Therefore, it is impossible to know where the exact triple bottom points were, unless we could look at a chart with price data for every week or every day. Now, as someone who has reviewed this material many times, I contacted the Chicago Mercantile Exchange and attempted to retrieve a listing of the daily highs, lows, and closes for the May 1940 Soybean futures contract. On all occasions, I did not receive any follow-up, and after agonizing over my inability to obtain these exact records, I realized something: Gann wrote this book in 1942, most likely presuming that readers would have access to the rough data akin to the chart he drew out and that it would be sufficient. Who had time to call the exchange for more than a year’s worth of daily soybean trading data just to better understand a textbook example?
+This is why Gann presents many examples but shares charts in a basic manner, without many details. I believe that he was trying to show that the true lesson is in following the money management rules that are applied, as buy and sell signals appear in the examples. All the details I previously got hung up on, like having precise historical data, were not crucial to my learning of the lesson at hand.
+So for every line of text relating Gann’s commentary on a trade to the actual corresponding chart, I’ve come to use the following procedure to extract the most knowledge from the trade with the least amount of frustration. I explain the procedure using the next line of text in the soybean example as a model.
+. Read the line of text:
+October 8—Raised STOP LOSS ORDER to 74.
+. Ask yourself, “Why did Gann do this?” Asking this question early will help make decoding his examples a much easier task.
+In this case, you would ask yourself, “Why was the stop loss raised?”
+. Immediately glance at the chart.
+In this example, you see that that, on October 8, May soybean futures rallied through 79 cents and established a new higher base at 76 cents.
+. Mark any observations made, in the margin of the text, in a separate file of notes, or both.
+For this example, I wrote “Raised stop to below latest bottom” in the margin.
+Let’s analyze the next line in the same fashion.
+. Read the line of text:
+October 29—Raised STOP LOSS ORDER to 81 1/4. Keeping Stop Loss Orders 1c to 3c under bottoms.
+. Ask, “Why did Gann do this?”
+In this example, the answer is pretty straightforward. A higher bottom formed, which is why the stop loss (protective stop order) was raised.
+. Immediately glance at the chart.
+The chart shows that a higher low formed at 83 cents.
+. Mark any observations.
+Here, I simply drew a line connecting my previous margin comment, “Raised stop to below latest bottom,” to this example’s line of text as well.
+By moving through Gann’s examples using these four steps, you will extract the most knowledge with the least amount of frustration. You will also zone in directly on the trade-management lessons that Gann was trying to convey through these many market examples.
+Soybean Trade Re-created
+Flipping back and forth between the text and chart is one way to associate Gann’s description of a trade or market movements to its correlating chart. However, for in-depth study, I wanted to do something more thorough. I racked my brain for a way to make the chart material more useful to study. I wanted the chart itself to present more information that I could ascertain at a glance. I ultimately attempted to use a spreadsheet to re-create the charts using the given data along with the text descriptions.
+By breaking down Gann’s text into several key elements to tell the story of the trade, I plotted the trade action in the form of a Scatter chart (using Microsoft Excel) to create a new form of the commodity chart. The advantages of going through this process were that (a) it gave me a clear visual description of Gann’s trade actions (whether historical or recommended) and (b) it forced me to immerse myself in the details of everything Gann laid out.
+Examine Figure 7.1, representing the May 1941 soybeans sequence of trades described in the Commodities book (p. 134).
+Image
+Figure 7.1. May 1941 Soybeans trade scatter chart
+Note that I broke down the soybean trade information into eight components, as described in the chart legend. A look at the first set of markers on the far left of the chart explains how the rest of the markers came about:
+In the middle of page 134 of the Commodities book, the text says:
+—August 20—May Soy beans, LOW 69c. The reason for buying was a triple bottom.
+We start with a capital of $1,000, which will margin 5,000 bushels of Soy Beans at 20c per bushel.
+Bought 5,000 May Soy Beans at 70c, placed stop loss order at 66. Risk limited to $200 and commission.
+Returning to the chart legend, the green solid diamond marker represents the price point (70 cents) and time point (August 20, 1940) at which the buy was entered (Buy Prices). (Note: Figures in the print book are grayscale, not color. To see the details of Figures 7.1 and 7.2 in color, go to the book’s website at www.informit.com/title/9780132734387 and click the Sample Content tab.) The purple solid dot marker represents the low (69 cents) made on that same date (Market Lows). The solid pink dashed line marker represents the stop loss (protective stop) placed (at 66 cents) on that trade (Stops on Longs). Finally, the green square marker represents the number of lots that were traded. The minimum number of soybean futures contracts that can be traded is one, and one soybean future represents 5,000 bushels. Therefore, buying 5,000 bushels in this example (as explained by Gann) would equal one lot, so there is one green box marker (Lot number on Buys) on the Scatter chart. Buying 10,000 bushels would equal 2 lots, buying 15,000 bushels would equal 3 lots, and so on.
+Image
+Figure 7.2. May 1941 Soybeans trade scatter chart with commentary
+Continuing through the text in this manner yields the data necessary for the rest of the chart (see Tables 7.1 and 7.2).
+Table 7.1. Data Inputs for May 1941 Soybean Trade
+Image
+Table 7.2. Data Inputs for May 1941 Soybean Trade
+Image
+Image
+The only columns that do not contain data directly from the text are the “Lot #” columns. I had to find a way to represent the number of lots bought and sold within the parameters of the x- and y-axes. Therefore, I decided to simply offset the lot number on buys and lot number on sells markers from the price per bushel at which the trade was made. For example, revisiting the first set of markers on the far left of the chart, the green square is positioned at the 60 cent level, an offset of 10 cents from the 70 cent buy entry price. If I had been selling at the 70 cent level, I would have placed a red square (lot number on sells marker) at the 80 cent level, again an offset of 10 cents, but this time placing the lot marker above the entry price marker (simply for visual ease).
+With this information in place, I took this new chart out a step further. I added the lines of text relating to the buying and selling points and the trade-management rules in use directly to the chart using text boxes and arrows (see Figure 7.2).
+Overall, creating this chart and printing an annotated copy for regular review had educational value for me. Hopefully you can see how going through this exercise gave me a way to piece together many of the concepts explored earlier in this book into a tradable, usable fashion.
+The best way for you to understand Gann’s principles is to work through his examples. Your study doesn’t have to be as elaborate as this soybean example, but it should not be as simple as reading through the example and setting it aside. Gann teaches through examples, so put your best learning methods to use to get inside his head.
+When you’ve got a handle on how these signals and tenets play out in real-life examples, you can apply them to your own markets of study and observe the combinations and sequences of signals as they emerge.
+Rigid Rules, Flexible Observation
+Gann’s buying and selling points and trading rules are presented with specific parameters to give you a framework to work within as a trader. However, one of the keys to successful trading is in being able to adapt to the market situation at hand.
+With most trade setups, when you are “with the trend” (in a profitable trade), the trade moves in your direction almost immediately. If it doesn’t, that is usually your first clue that you are in a losing trade. The beauty of Gann’s trading methodologies is that they nicely fit within this framework. Certain clues can tell you relatively quickly whether the signal is going to play out as projected.
+Take a look at Figure 7.3, of Corning. The market declined from $23.43 (February 4, 2011) to $11.51 (October 4, 2011) over the course of four sections down.
+Image
+Charts created using TradeStation. ©TradeStation Technologies, Inc. 2001-2012. All rights reserved.
+Figure 7.3. GLW, daily, as of April 25, 2012
+Zooming in toward $11.51, Figure 7.4 shows that the subsequent rise from the $11.51 bottom first tested the $15.59 resistance level (August 15, 2011 high) on October 27, 2011, reaching $15.62. However, the market posted a bearish test failure and returned to $13.71 (November 1, 2011 low). Another move higher took place, and strength retested the $15.59 key resistance one more, reaching $15.75 (November 15, 2011 high); however, a bearish test failure again formed. The market then reversed lower into a downtrend.
+Image
+Charts created using TradeStation. ©TradeStation Technologies, Inc. 2001-2012. All rights reserved.
+Figure 7.4. GLW, daily, as of December 23, 2011
+The test failures were the first clues that this seemingly bullish setup was shaky. Other clues emerged as well. Look at the price action from the $11.51 low to the $15.75 high. Notice that it occurred in a series of sections, not one straight move, which would have indicated that greed had forcefully overcome fear and bulls were in control. This illustrates another way to confirm a signal, which is to look at the structure within the potential signal formation.
+Another aspect of “rigid rules, flexible observation” shows up in how you perform your chart analysis. For example, when a tenet is presented and you are observing a 5-minute chart of a security, you must be flexible and willing to observe the security under different conditions. For example, when sections are not clear on that 5-minute chart, have the flexibility to move to a 1-minute chart or a 60-minute chart.
+As you study the methods presented in this book within the context of your markets of interest, you will continue to discover the value of knowing the rules but being flexible as trading situations unfold.
+====== 8. Beyond Trading Basics ======
+Looking to the Left of the Chart
+Gann quoted King Solomon often, and one of the quotes he referred to was, “There is no new thing under the sun” (Ecclesiastes 1:9). If that’s the case, then looking to the left of the chart, at the history of a market, has the potential to provide valuable insight into the future of that market.
+That is what forecasting is all about. Now, I know I said that this book is about Gann’s trading methodologies, not his forecasting work. However, I feel compelled to end this book with a brief foray into the importance of studying past price movement within a specified market. This is because Gann’s most advanced (and prized) analysis methods all involve the study and observation of cycles within markets.
+The key to understanding Gann’s more complicated tools begins with understanding what a cycle actually is. According to Merriam-Webster’s online dictionary, the first definition of cycle is “an interval of time during which a sequence of a recurring succession of events or phenomena is completed.” This definition mentions time, and this is the use of cycles most of us are familiar with, even outside of trading and the markets. We can examine the spans of our lifetimes and see how seasons change four times a year. We can examine our 24-hour day and see our sleeping and waking rhythms come into play. We can examine our government and see how actions repeat, with our major elections every four years. The list goes on and on.
+To help you grasp Gann’s advanced work, as you proceed with your study, you must understand that cycles apply to every aspect of our universe and to our trading, not just to time. In the case of the markets, cycles can be applied to price. This is why you see old bottoms become new tops (basis of Gann Selling Point #1) and old tops become new bottoms (Gann Buying Point #1). Definition 2a of cycle reinforces this point: “a course of series of events or operations that recur regularly and usually lead back to the starting point.” It might seem at times that prices move haphazardly between zero and infinity, but they do “recur regularly” and “usually lead back to the starting point,” depending on which point you are measuring from.
+Definition 2b of cycle carries the word that is paramount to using cycles in forecasting: “one complete performance of a vibration, electric oscillation, current alternation, or other periodic process.”
+The magic word is vibration. Time vibrates. Price vibrates.
+Measuring the vibrations of each market you follow is what forecasting is all about. I present some exercises to get you started in being aware of the vibration or rhythm within the market you trade.
+The first step is to look at the OHLC chart of the security on a monthly or weekly basis. Start as early in the history of the price data as possible. The more data you can study into the past, the more you can determine about the future.
+Using Google as an example, the stock was first traded on August 19, 2004. I’ve shared two weekly charts of Google. Figure 8.1 explores the first half of its 12-year life, and Figure 8.2 explores the second (or current) half.
+Image
+Charts created using TradeStation. ©TradeStation Technologies, Inc. 2001-2012. All rights reserved.
+Figure 8.1. GOOG, weekly, as of February 22, 2008
+Image
+Charts created using TradeStation. ©TradeStation Technologies, Inc. 2001-2012. All rights reserved.
+Figure 8.2. GOOG, weekly, as of March 16, 2012
+The second step after acquiring trade data is to mark the significant highs and lows on the chart, especially the extreme high price and the extreme low price. Then use a separate daily chart to figure out the precise dates that match the high and low values.
+A. $95.96 extreme low (August 19, 2004)
+B. $216.80 high (February 2, 2005)
+C. $172.57 low (March 14, 2005)
+D. $317.80 high (July 21, 2005)
+E. $273.35 low (August 22, 2005)
+F. $475.11 high (January 11, 2006)
+G. $331.55 low (March 10, 2006)
+H. $513.00 high (November 22, 2006)
+I. $437.00 low (March 5, 2007)
+J. $558.58 high (July 16, 2007)
+K. $480.46 low (August 16, 2007)
+L. $747.24 extreme high (November 7, 2007)
+M. $412.11 low (March 17, 2008)
+N. $602.45 high (March 2, 2008)
+O. $247.30 low (November 21, 2008)
+P. $629.51 high (January 4, 2010)
+Q. $433.63 low (July 1, 2010)
+R. $642.92 high (January 19, 2011)
+S. $473.02 low (June 24, 2011)
+T. $627.50 high (July 26, 2011)
+U. $480.60 low (October 4, 2011)
+V. $670.25 high (January 4, 2012)
+Points A–V are listed in chronological order. However, if you flip to Appendix E, “Google, Inc., (GOOG) Highs and Lows by Calendar Month,” you will find a list of the same high and low values, but organized by calendar month, from January to December.
+Right off the bat, you should notice that some months contain several instances of significant highs or lows; other months are devoid of any major market turn during the entire history of trading of this stock.
+The month of March shows five significant turns. January and July show four turns each. August and November show three turns each. So when trading this market into the future, would you expect significant changes in trend or market turns to occur during these months? Of course you would. You would not trade them blindly, but you would have awareness of the rhythm of this market, the beat to which it has been moving.
+Similarly, note that no major trend changes took place in the months of April, May, September, and December. Would you expect turns to occur in those months ahead? Not likely.
+Again, this is one of many ways to get to know the rhythm of your market. The more you make these types of observations and the more you study the relationships among highs and lows in the market, the more usable information you will uncover.
+Recommended Reading
+The first order of business for a serious student of Gann’s works is to read through his original publications, as listed in Chapter 1, “The Work of W.D. Gann.” As mentioned earlier in the book, it is helpful to study Gann’s materials in the order in which he published them. Next, you can explore his specific market courses, depending on your area of interest: commodities, stocks, options, and so on. Additionally, you can read the books that Gann read himself, which are listed in a recommended reading list that Gann created. This list includes 81 titles, and the Lambert-Gann Publishing Company has reproduced 21 of them so far.
+Gann spent a lifetime studying and reading about the markets. I am not saying that you need to do the same to use the valuable knowledge he shared. My intention is to provide you with a possible path of learning that you can adjust to your desire.
+Obtaining Charts
+Before you embark on (or return to) studying Gann’s original works, I recommend taking time to collect five security charts. You can use your own charting software or free online sources. I’ve listed a few web sites that enable you to plot the types of charts I describe. Feel free to search out other web sites on your own; many exist.
+www.freestockcharts.com
+www.bigcharts.com
+www.google.com/finance
+You can save images of the charts in your charting software workspaces or use images from the online sources. However, I recommend having hard copies (printed) of the chart, whether you are accessing them digitally or have hard copies already in a trading newsletter or other chart-based publication. Make sure that you have one set of copies that you can mark up while keeping a clean set of originals.
+As for the types of securities to choose for your charts, I believe you will get the most benefit in seeing the universal application of Gann’s principles if you vary your charts. For example, you might choose to plot a stock, a commodity future, a currency, a fixed-income instrument, and a stock index future as your five securities. Vary the time frames you use. The choices are endless, but ideally, you want to see different degrees of market movement. For example, you might use a quarterly chart, a weekly chart, a daily chart, a 60-minute chart, and a 5-minute chart, instead of a 5-minute chart, a 4-minute chart, a 3-minute chart, a 2-minute chart, and a 1-minute chart.
+As computer technology and graphic design continue to advance, the myriad chart styles available to traders and investors is vast and can be overwhelming. The most basic chart depicts the price action only—open, high, low, close (OHLC)—in the form of bars or candlesticks. Kagi charts incorporate volume into candlestick charts. Other trading systems color-code basic bar charts to extrapolate continuations or changes in trend based on each bar’s directional movement. Many of these charts are useful to a variety of students of the market when combined with oscillators and other studies. However, these types of indicator-synthesizing charts are not crucial to understanding Gann’s basic tenets. In fact, they might confuse a beginner student.
+Therefore I recommend that you plot the charts as OHLC charts, as I’ve done with every example in this book. After you’ve plotted your charts as OHLC, create another set of charts of the same securities and time frames using Japanese Candlesticks, along with any other analysis tool with which you are familiar or would like to observe (moving average, MACD, and so on). Keep in mind that, for the purposes of practicing recognition of Gann’s signals, it is best to plot any indicators separately on the chart (below the price bars), not overlay them on the price action.
+Finally, I recommend keeping the colors of the charts simple, as I have done in this book. Use black OHLC bars against a white background. Some charting systems plot bars in green when the closing prices are above the opening prices, or plot in red for when the closing prices are below the opening prices. This might be helpful with your current trading, but it will likely confuse you in your initial practice of applying Gann’s basic methods.
+Gann’s Writing Style and References
+If you have already begun your study of Gann’s materials, you probably understand why I am compelled to address his use of language. If you have not yet read any of Gann’s materials, let me give you some examples of his style of writing, to clue you into what I believe was part of his strategy as an author.
+The Holy Bible
+The first quote from the Bible that Gann presents in his writings to the public is in his first book, The Truth of the Stock Tape. On page 51, he wrote, “The thing that hath been, it is that which shall be; and that which is done, is that which shall be done; and there is no new thing under the sun.” (Ecclesiastes 1:9) Gann refers to the Bible many times throughout his works. Despite your religious (or not) convictions, it might be helpful to have a copy of the Bible to refer to as such quotes are mentioned. Pay close attention to all of Gann’s Bible quotes—they are very near and dear to him, and he does not refer to them lightly.
+Discussions of Mathematics
+Gann often chooses famous quotes (often biblical ones) or creates his own phrases or sentences that discuss mathematics. To the casual reader, these might seem sprinkled into the book, but I believe that Gann purposefully placed these tenets as reminders of the greater realm within which trading and investing take place. It’s all a game of supply and demand, which can be qualified and quantified. Anything that can be quantified is subject to the rules of the universe, which Gann clearly believes to be embedded in mathematics. Therefore, do not glaze over these statements or quotes when you approach them in Gann’s text. Instead, begin to keep track of them on your own, and refer to them regularly to remind you that everything is happening in trading and investing within the context of the language of the universe: mathematics. Whether or not you believe this to be true, you will definitely benefit from the point of view to which this keeps you attuned.
+Nothing Is Accidental
+Gann once wrote the following: “When you make a trade, it must be on a good rule and for a good reason. There must be the possibility of a reasonable profit within a reasonable length of time .... The time limit to hold a Commodity depends upon the position you are in and the indication on your chart.”1
+When you read sentences such as these, don’t be alarmed at the lack of detail. In my experience and study, Gann often writes such sentences mainly to bring your attention to an idea; he explains it later, usually through a real market example. The best way to deal with comments such as these is to not only highlight or underline them in the text, but to reiterate them in an independent outline of the key points from the chapters you are reading in any one book. By simply reprinting the line on another page, you acknowledge its importance. By reorganizing it into context with other similar tenets, you acknowledge its place. By reviewing it after all reading is said and done, you imprint it onto your brain—if that’s not studying, I don’t know what is!
+Gann’s use of uppercase font seems quite frequent. Take Gann’s use of capitalization as an arrow pointing to information or ideas that he believes are important for you to understand and embrace. Be sure to incorporate these elements into your outline as you study.
+Gann’s arrangement of rules and descriptions throughout his text is unique, in that he does not always start with the most important items first. I believe that this is a step used to weed out the casual learner. How does it work? Well, for example, when Gann presented his list of buying points in the Commodities book, the casual learner might have read the first couple of signals listed, found them easy enough to understand, and then taken those rules to market application, which often ends up being a premature move. However, the serious and dedicated learner would have read through an entire list of rules or ideas before attempting to apply any one of them. It has been my experience with Gann’s works that, in this case, the student is rewarded duly. For example, the most crucial buy rule might come in the middle of a list of several, properly characterized by excessive use of capitalization and all. It can then be noted and highlighted as the most crucial rule and can be given top priority within the repertoire of signals learned from the readings. Basically, I believe through my study experience that Gann purposefully made the most important rules and ideas ones on which serious students would focus.
+I believe that even the titling of some of Gann’s books is done with great purpose. When I first came across 45 Years in Wall Street, I assumed this to signify that Gann spent about 45 years studying the markets. But then I came across some facts about his life. The first was that, by the age of 24, he made his first trade in the commodities markets.2 The second was that he wrote the book at the age of 72. Clearly, at the time, he had been involved with the markets for nearly 50 years, so why did he create a title highlighting 45 years? Well, referring back to the significance of eighths retracements on price, let’s manipulate the eighths concept to time. We measure time in several ways, but the most straightforward is in calendar days. One year (Earth orbiting around the sun) is measured as approximately 365 days. During this time, the Earth moves in an elliptical orbit, 360° around the sun. What is one-eighth of 365 days? 45.625. And one-eighth of 360°? That’s right, 45°. If you are familiar with Gann’s works and are using this book to revisit basic ideas, you’ve probably already seen the significance of the measurement 45 in trading examples or trades of your own. If you are new to Gann’s works, take this example as a strong hint to pay close attention to every aspect of each work.
+Again, Gann was a deliberate writer, and being aware of that as a student will greatly increase the value of your learning experience.
+Lack of Fillers
+Gann generally gets right to the point of what he is trying to convey. He states the teaching as he has learned it through his study and experience, and then he provides examples to illustrate it. At times, therefore, it might seem that reading his text is like reading an endless list of facts and tenets. This actually can make absorption of his material more difficult for some students; the brain has no time to rest and process if you read his text as if it is a narrative. Therefore, to help better absorb the material, especially at first when you are unfamiliar with this type of writing, pause (even just for a few seconds) after each page or even paragraph. Wrap your mind around what you just read before moving on to the next set of ideas.
+Creating Affirmative Language
+Gann writes more than a few sentences that speak right to the reader. He creates sentences starting with You that describe things you should or shouldn’t be doing. To make those statements active and useful, turn them into affirmatives. This is what I did with the list of 28 rules, and you can apply it to any other aspect of Gann’s works.
+Again, keep a running list. For example, you can convert a sentence like “You should learn to trade on knowledge and eliminate fear and hope” (page 1 of the Commodities book) into “I trade on knowledge.” Eventually, you will build a list of affirmative statements that reinforce Gann’s tenets in your mind. The list will become helpful when you are in the “review” phases of trades, and even perhaps while you are managing them.
+Even headings in the tables of contents in his books use “negative” language. In the Commodities book, just a few headings in, you read, “Human Element the Greatest Weakness,” “What to Do When Commodities Are Going Against You,” and “What to Do When You Have a Series of Losses.” When you take notes on these chapters, using affirmative language helps you process the material. For example, under the heading “Time to Stay Out of the Market,” be sure to focus on what Gann is trying to convey about times to get into the market.
+Collect Your Own Examples
+Just as Gann presents trading examples in great detail with the exact days, dates, and actions in his descriptions, do the same when you are ready to apply Gann’s teachings to your charts. From the moment you come up with a trade idea, document it on its own. If the trade entry gets filled, note that as well. As the trade plays out, document the actions you take, as well as the reasons you take them, which should be part of your review process anyhow. In our modern world, we have the advantage of being able to apply notes directly to our computerized charts. Your annotations don’t have to be long—just make them clear so that, upon reviewing the chart or text, you will know exactly what you did during that trade. In essence, I am asking you to track trades and examples as if you were going to write your own book delineating your trading methodologies. This will likely lead you to create a solid base of chart examples and text that add confidence to your future trading and that you can revisit and study to improve upon your skills.
+A Study “Partner”—an Invaluable Tool
+In my early days of learning about the markets and technical analysis, I had my father’s guidance and mentorship. I also had him as a partner to review charts.
+When I studied for my Chartered Market Technician (CMT) exam, I studied for Levels 1 and 2 mostly on my own, but I also worked with classmates from my exam preparation class. For Level 3, I reached out to other exam candidates and created a live study group. We studied together in person a few times, and we each brought in charts to share and compare ideas. Ultimately, every single person in my group passed the exam.
+Why am I sharing this? I believe that study tools and groups should not be left behind after our academic days have passed. They can continue to provide a unique way to test our understanding of new material or refresh our brains on previously acquired knowledge.
+I understand that many readers of this book—and, therefore, students of the markets—might find it daunting to find a study partner and pursue that learning relationship. But what’s interesting is that you can become your own study partner by performing a few study tricks as you learn Gann’s principles and apply them to charts.
+First, remove identities. Using an image-editing program (every operating system generally comes with one, by default), edit out any labels on the chart that indicate the name of the security, the time axis, the price axis, or any other identifying information. You should ultimately be left with a series of unlabeled price bars. Set aside the chart for awhile and use it in a subsequent study session when you will no longer remember what label was there. By doing this exercise, your inherent view of a particular market based on fundamentals or current market conditions won’t skew your analysis of the chart itself.
+Second, turn the chart upside down. Rotate a printed chart clockwise until the original right side is now on the left and the original left side is now on the right. Figures 8.3 and 8.4 show examples of this; the first shows the original chart, and the second shows it in its manipulated state.
+Image
+Figure 8.3. Example of blank chart for self-study
+Image
+Figure 8.4. Example of blank chart for self-study after rotation
+Again, because you’re ignoring the labels, you have an easy way to neutralize a chart by turning a downtrend into an uptrend, and vice versa. Some people are inherent bulls or bears. But this exercise forces you to look at a market’s price action in the reverse of what you just studied and analyzed. If you’re an inherent bull and tend to bring up charts with uptrends to study, this gives you more downtrend examples. Understand that this is not a reflection of how the market trades—trends don’t reverse into mirror images of the preceding price action. As I discussed earlier in the book, tops and bottoms do not form in exactly the same way. However, the general sections and patterns that form in the charts will still provide useful templates to become familiar with and be able to apply in future market analysis.
+Third, revisit charts. Say that you intend to print several examples for immediate study. Be sure to print two copies of the same security and time frame. Mark up one of the copies with what you see as you first enter into Gann’s teachings. Save the chart, along with its unmarked companion. Then when you are studying at a later phase in your learning, put those two charts back in front of you. If you simply see additional information to mark on the studied copy, go ahead and add the new information. However, if you see a set of patterns or signals that jump out at you in a new way, mark those observations on the blank copy. Date each chart every time you mark it up. As you continue to study Gann’s materials, this will help you monitor every new concept that you learn.
+The End...of the Beginning
+We’ve explored several Gann tools in this book and can consider them in any market environment. Hopefully you can see that many of Gann’s trading methodologies are straightforward enough to apply to your current market study. The Gann signals might work best for you when applied within the context of your existing trading toolbox—whether that includes oscillators, studies on the price chart, candlesticks, Fibonacci, or something else. Confluence is the key. Gann’s methods are simple enough to add to other analysis tools already in play, as the subtitle of this book suggests.
+Learning the buying and selling points is a bit like learning to ride a bicycle. You need to practice and get the hang of recognizing the signals. I recommended following them on paper before applying them to your live account. That’s sort of like your training wheels. Then as you build confidence in your ability to recognize the patterns and plan sound trades around them (remember capital preservation), you can take off the training wheels and slowly incorporate these tools into your trading plan.
+My goal in writing this book was to provide students like you a guide to mastering Gann’s works. I wanted to write the book that didn’t exist when I was 16 years old and was first handed the Commodities book by my father.
+I hope that you have found value in what I’ve presented and that I’ve inspired you to take the next step toward trading success.
+C. Gann’s Buying and Selling Points
+Gann Buying Point #1: BUY at OLD BOTTOMS or OLD TOPS. When a commodity declines to an OLD BOTTOM or to an OLD TOP, it is always a buying point with a STOP LOSS ORDER. In fact, you should never buy unless you can figure where to place a STOP LOSS ORDER 1 cent to 3 cents away and when commodities are selling at high prices, never more than 5 cents away ....
+Gann Buying Point #2: SAFER BUYING POINT. Buy when wheat, cotton, or any commodity crosses a series of tops of previous weeks, showing that the minor or the main trend has turned up as indicated by the charts on individual commodities.
+Gann Buying Point #3: SAFEST BUYING POINT. Buy on a secondary reaction after wheat, cotton, or any commodity has crossed previous weekly tops and the advance exceeds the greatest rally on the way down from the top.
+Gann Buying Point #4: BUY when the first rally from the extreme bottom exceeds in time the greatest rally in the preceding Bear Campaign.
+Gann Buying Point #5: BUY when the period of time exceeds the last rally before extreme lows were reached. If the last rally was 3 or 4 weeks, when the advance from the bottom is more than 3 or 4 weeks, consider the trend has turned up and commodities are a safer buy on a secondary reaction.
+Gann Buying Point #6: BUY AFTER BREAKAWAY POINTS ARE CROSSED ON INDIVIDUAL COMMODITIES. The market will then be in the runaway move where you can make large profits in a short period of time.
+Gann Buying Point #7: BUY when wheat, corn, cotton, or any commodity declines to 50% of highest selling prices, or to 1/2 or 50% range between extreme high or extreme low prices. This is one of the safe buying points, as we will prove later by examples of past market movements. When there is a 50% reaction of the last move up, it becomes a buying point so long as the main trend is up ....
+Gann Buying Point #8: BUY against double or triple bottoms, or buy on first, second, or third higher bottom and buy a second lot after wheat, soybeans, or cotton makes second or third higher bottom, then crosses previous top.
+Gann Buying Point #9: BUYING RULES FOR RAPID ADVANCES AT HIGH LEVELS. In the last stages of a Bull Market in a commodity, reactions are small. Buy on 2-day reactions and follow up with STOP LOSS ORDER 1 cent to 2 cents under each day’s low level. Then when the low of a previous day is broken, you will be out. Markets sometimes run 10 to 30 days without breaking low of previous day.
+Gann Selling Point #1: SELL at OLD TOPS or OLD BOTTOMS. An important point to sell out longs and sell short is at OLD TOPS or when wheat or commodities rally to OLD BOTTOMS the first, second, or third time...
+Gann Selling Point #2: SAFER SELLING POINT. Sell when wheat, soybeans, cotton, or any commodity breaks the low of a previous week or a series of bottoms of previous weeks as indicated by the trend and rules.
+Gann Selling Point #3: SAFEST SELLING POINT. Sell on a secondary rally after wheat, soybeans, cotton, or any commodity has broken the previous bottoms of several weeks or has broken the bottom of the last reaction, turning trend down. This secondary rally nearly always comes after the first sharp decline in the first section of Bear Campaign.
+Gann Selling Point #4: SELL after the first decline exceeds the greatest reaction in the preceding Bull Campaign or the last reaction before final top.
+Gann Selling Point #5: Sell after BREAKAWAY POINT is crossed.
+Gann Selling Point #6: Sell when the period of time of the first decline exceeds the last reaction before final top of the Bull Campaign. Example: If wheat or any commodity has advanced for several months of for one year of more, and the greatest reaction has been 4 weeks, which is an average reaction in a Bull Market, then after top is reached and the first decline runs more than 4 weeks, it is an indication of a change in the minor trend or the main trend. The commodity will be a safer short sale on any rally because you will be trading with the trend after it has been definitely defined.
+Gann Selling Point #7: SELL at 50% or 1/2 point of last high to low of sharp decline or sell at 50% of highest selling point or 50% of greatest range. Sell when wheat, soybeans, cotton, or any commodity rallies 50% of a previous move down ....
+Gann Selling Point #8: SELL against Double Tops or Triple Tops, or SELL when the market makes lower tops or lower bottoms. It is safe to sell when wheat, soybeans, or cotton makes a second, third, or fourth lower top; also safe to sell after double and triple bottoms are broken.
+Gann Selling Point #9: SELL in the last stages of Bear Market or when there is rapid decline and only 2 days’ rallies, and follow down with stop loss order 1 cent above the high of the previous day. When wheat or any commodity rallies 1 cent or more above the high of the previous day, you will be out on stop. Fast-declining markets will often run 10 to 30 days without crossing the high of the previous day.

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