"William D Gann Was a Speculator, and Obsessed With Market Patterns. He Used Price, Time and Trend To Make and Lose Fortunes -
But He Was Right 88-90% of The Time"

Introduction

William D. Gann

William D Gann was born in 1878 in Lufkin, Texas, a strong religious man, who later became known as "The Master Trader."

Gann believed that a natural order existed for everything in the universe.

Common sense tells us that, yes, there are occurring patterns in nature, but there is also randomness.

"The World of William D Gann"

In William D Gann's world, the world is made up of patterns that repeat themselves over and over. He reckoned that if you knew the "secret" of the patterns you could predict just about anything.

But who can argue against him?  His success rate was between 80% and 90%. Here are just a few of his typical trades:

• 1908  a $130 account of his increased to $12,000 in 30 days
• 1923  a $973 account increased to $30,000 in 60 days
• 1933  he made 479 trades with 422 of them profitable (an accuracy rate of 88% or 4000% profit)

"The Methods of William D Gann"

William D Gann was the first person to develop a system for predicting future price movements from past price movements, and his methods are still widely used today.

He had three elements of thought: time, price and trend.

Gann “perfected” a theory of knowing when to trade and at what price compared to a previous top or bottom.  And, he wanted to know the direction of that market – was it Bullish or was it Bearish?

Taking the first of his elements:  time

Gann believed in cycles and seasonality both for commodities and for stocks.  His time theory states that you could predict the timing of a major move, and how long it would take, just from looking at price history.

He said:  “Only when time is right will space movement start.  At the end of any important movement - monthly, weekly, or daily - time must be allowed for consolidation.”

He divided the year into half, then quarters, then into eighths and sixteenths to get to his critical time periods.

Another number he thought important was 49, since there are 7 days in a week, and 7 x 7 = 49.  The 49th. – 52nd. day after a major top or bottom or during the year is an important time for changes in trend.

Gann’s ideas on time do have a certain amount of logic to them.  In the Stock Market, institutional cash flow is  stronger at certain times of the year than others and in the commodities markets, crops are harvested at a particular time of year. 

The second element to Gann’s theory was that of:   price

He asked the question:  “what percentage of price retracement can we expect from any major movement within a trend?”

Gann realised that markets do not go up or down in straight lines, there is always a reaction.  Gann discovered that the most important retracement percentages were 50%, 100%, 75%, and 62,5%.

The 62,5% is also known as the “Golden Ratio.”  It has been known since Ancient Greek times and used in architecture and paintings.  And is still used today in those fields as ‘aesthetically’ pleasing.

The Golden Ratio is based on a mathematical sequence called a “Fibonacci” sequence (the rules of which are that the next number in the series is the sum of the previous two numbers).

The basic sequence being:  1,1,2,3,5,8,13,21,34,55,89,144,233 etc.

But Gann liked the sequence beginning with the number 7.  So his series looked like:  7,7,14,21,35,56,91,147,238,385, etc.

He experimented with these numbers.  He found that the sum of the second and fourth numbers is 28, the number of days in a lunar cycle; the sum of the third and fifth numbers 14 + 35 is 49 (an important Gann number); the seventh number is 91, the number of days in a quarter of a year; the sum of the eighth and fifth numbers is 182, the number of days in 6 months.  And the list goes on…..

You may think that this is a load of mumbo-jumbo, but wait a minute, who can argue with Gann, he was right nearly 90% of the time.  This is an excerpt from the 1909 December issue of ‘The Ticker’ magazine:

“One 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 day) the option was 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 calculations.  I do not care what the price is now, it must go there.’  It is common history that September Wheat surprised the whole country by selling at $1,20 and no higher in the very last hour of trading, closing at that figure.”

The third and final element to Gann’s thoughts was that of trend direction.

“The Trend is Your Friend”

Gann’s advice was to establish which direction the trend was going and stick with it.  Only changing your trade if there was a clear sign of a change in trend.

So, if the trend was up, you looked to buy on the dips, using his retracement rules to get the timing right. And if the trend was down, sell on the rallies, again using his retracement rules.

If there was no clear trend, stay out of the market.

"The Rules of William D Gann"

As investors, we should all have rules.  And stick to them.  We're sure that William D Gann, and all his contempories, were extremely disciplined.

Gann had many rules for stock and commodity trading, here are a few of them:

•  Divide your capital into 10 equal parts and never risk more than one-tenth of your capital on any one trade
  
  
• Use stop loss orders.  Always protect a trade when you make it, with a stop loss order
  
  
• Don’t buck the trend.  Stick with it
  
  
• Avoid getting in and out of the market too often. i.e. never overtrade. This would be violating your capital rule
  
  
• When in doubt, get out.  And don't get back in if still in doubt
  
  
• Trade only in active stocks.  Keep out of slow, dead ones
  
  
• Distribute your risk evenly.  Trade in four or five stocks 
  
  
• Never let a profit turn into a loss. When you have a decent profit, up your stop loss order
  
  
• When in doubt, get out.  And don’t get back in if still in doubt
  
  
• Trade at the market. Don’t leave a limit order
  
  
• Don’t close your trade without a good reason. Follow up with a stop loss order to protect your profits.
  
  
• Never get out of the market just because you have lost patience, or get in because you are fed up with waiting
  
  
• Never average a loss.  This is one of the worst mistakes that a trader can make
  
  
• Run your profits and cut your losses
  
  
• Trade in a way that you will not be disturbed mentally by a loss if it comes
  
  
• Accumulate a surplus.  Never buy just to get a dividend
  
  
• Avoid taking small profits and big losses
  
  
• Be just as willing to sell short as you are to buy.  Let your object be to keep with the trend and make money
  
  
• Never buy just because the price of a stock is low, or sell short just because the price is high
  
  
• 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 a definite plan, then do not get out without a definite indication of a change in trend
  
  
• Avoid increasing your trading after a long period of success or a period of profitable trades

You need to remember that William D. Gann was an investor at the very top of his game.  He dedicated his whole life to the study of his principles.

There were no computers in his day.  All his calcs were done by hand.

Furthermore, we reckon that he contradicted himself at times.  Also, he wasn't frightened to sell stock short.  Short selling is a technique best left to the professionals.  It has no place in Retirement Investing.

This website does not advocate the technique of short selling (because it is an extremely advanced technique - and a short term one).  If a market, or stock, is falling, we tend to sell stock (if we own it) and we only think about taking any further action when the technical indicators point to the stock being a buy again.

"Books by William D Gann"

William D Gann published many books and collections of his writings. Our favourites are the books listed below:

Truth of The Stock Tape

Truth of The Stock Tape by William D Gann

'Truth of the Stock Tape' was first published in 1923.  It is fully illustrated with 22 charts showing clearly William Gann's method of trading.

'Wall Street Stock Selector' was first published in 1930 and brings 'Truth of The Stock Tape' up to date.  It covers the 1929 bull market and the cause of the panic that followed. 

The work herein described, is actually two books:  'Truth of the Stock Tape' and 'Wall Street Stock Selector'.   The latter being a natural sequel to the former.

You can get this marketing classic right here:

45 Years in Wall Street

45 Years in Wall Street by William D Gann

Gann has this knack of writing in an easy-to-understand sort of way. Just what us private investors need.

Gann was 72 years of age when he wrote this book so he had a whole lifetime of his experience to impart.  This is noticeable in the rules that he laid down.  Rules that he adhered to. 

In the book he reveals some of his most valuable rules and secrets.  For a man who was right 80-90% of the time, his writings should not be ignored.

Get this classic book by clicking on the link just below:

Conclusion

William D Gann is a little bit like Marmite - you either love him or hate him.

But you cannot fault him.  His success speaks volumes. 

However, there are many savvy investors who think that 'Technical Analysis' is a load of hocus pocus.  A sort of 'black hat' technique.

Benjamin Graham and Warren Buffett are two such investors that do not, and have not, used 'Technical Analysis' as part of their research into stock picking.  And who wants to argue with them?

We here, at CommonSenseRetirementInvesting, are ardent Buffettologists but the only area where we differ with Warren Buffett, in our thinking is with 'Technical Analysis'.

Buffett, and Graham before him did not like Technical Analysis.  However, we do.  But ...

... William D Gann was a genius.  No doubt about that. 

But our investing here at CommonSenseRetirementInvesting.com is much more conservative than Gann. 

He shorted the markets - something we wouldn't dream of doing in a SIPP. 

He also traded commodities quite heavily.  We don't do that either - although we could probably find an ETF that tracked commodities.

What we suggest is that you obtain some of William D Gann's (and others) works and decide for yourself.  Were his methods hocus pocus - or has Technical Analysis got legs?

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