WD Gann Trading Rules
WD Gann Trading Rules: Here are the 28 rock solid WD Gann Trading Rules and I have expanded them explaining them in detail and also tried to relate them with today’s markets. W Gann laid very fundamental strong set of rules for trading in any markets. Though these rules were written in 1930s and the markets were much different and those time, however these rules are still valid and applicable and traders who can follow these rules may ensure a successful trading career.
Many legendry traders follow WD Gann Trading Rules and Gann Trading Techniques in today’s markets and have achieved success and so can other traders. Also, please ensure you read the last para as that will be very crucial to follow these rules and set them in your sub conscious mind gradually.
- Capital sub division. Divide your trading capital in 10 equal parts and never risk more than one- tenth of your capital on any one trade. Trading Capital means trading capital and William Gann was trying to say that you must still have ensured your financial security before coming to the financial markets by keeping a major fund safe for future needs. So if your net worth is USD 100,000, then you must have secured 90% for your future and used 10% as trading capital and hence only USD 1,000 which is 1% of the total net worth should be used for each trade.
- Use Stops. Always protect yourself by limiting your loss and deciding at which price levels your analysis will go wrong.
- Never over-trade as this shall not respect the rule number one of capital subdivision in to small trades. The first rule should be seen in respect to the frequency of your trading. In case your frequency is higher than you need to adjust the stop amount as well. And also note that fast decisions are usually wrong decisions. I myself think of a trade many months, weeks and days in advance and only trade it if all the conditions are satisfactory and all the Gann analysis principles are fulfilled
- Never let a profit run into loss, after your position is in profit raise your stop, so that you will have no loss on the capital. This rule has an expectation that I follow, I use swing lows or highs for setting my stops, which means loss is allowed in the cases where the stop has not been revised above or below my entry level (as the case may be applicable). View the full article I wrote on Stop Revision Method
- Do not trade if you are in doubt, never buy or sell if you are not sure of the trend according to your charts and checklist. W. D. Gann meant here that try to enter in those trades which have confirmed your filtration criteria or the trades that have high probability of going into your favor.
- When in doubt get out, and stay away when in doubt, capital safety is primary, enjoy the time in other activities, write a poem, watch cartoon, phone a friend and let the market reach the point of conformity or trade in some other familiar market.
- Always trade in liquid markets, avoid illiquid stocks, commodities, currency futures.
- Divide your capital risk by trading in more than one (stock, commodity or currency) future. Two to three max. W Gann naturally meant risk diversification in this rule as stocks and commodities also carry individual risks which are different from overall market risk.
- Never limit your orders or fix a buying selling price. Trade at the market. Wiilliam Gann wrote this as rule as he knows catching the exact top or bottom might not be possible for a trader and he may miss a profitable move. So once the trader is confirmed that now is the time of reversal he should execute the trade with the genuine stop as buffer for the position to start getting converted in to profits.
- Don’t close your trade without a reason, follow with stop order to protect your profits.
- Accumulate your surplus funds, once you have a series of winning trades and keep these funds in a savings account and use them only in case of market panics. Also read my article-Psychological Fixed Deposit
- Never buy or sell to get a scalping or minuscule profit.
- Never average a loss, this is one of the greatest mistakes.
- Never get out of the market just because you have lost your patience or get into the trade because you became anxious and could not handle waiting any more
- Avoid taking small profit and big losses. Even with accuracy of 80% a trader might remain in a loss if he is taking big small profit and small losses. Options sellers operate at accuracy of above 99%, where the profits are small, while the 1% cases of loss could be big that they wipe out all the profits. Mark Douglas talked about a trader who had only 5% of winning trades, but his profitable trades were phenomenally profitable, while he was very quick to get out of a losing trade. His 5% profitable trades were able to pay off for all the 95% losing trades and also bought him into net Profit in the end of each financial year.
- Never cancel a stop order after you have fixed it after entering the trade as you fixed that stop because of some purpose. Stop gets hit come and again read this list of WD Gann Trading Rules.
- Avoid getting in and out of market too often, very similar to over trading rule.
- Be just as willing to sell as willing to buy, let your objective be to make money with the trend
- Never buy a stock/commodity/currency just because the price of the stock in too low or don’t sell just coz its too high.
- Be careful about Pyramiding at the wrong time. Wait until the stock/ commodity/ currency is very active and has crossed the resistance levels before buying more and until it has broken out of the zone of distribution before selling more.
- Select the commodities that show strong uptrend to pyramid on the buying side and the ones that show definite downtrend to sell short
- Never hedge. If you are long of one commodity and it starts to go down, do not sell another commodity short to hedge it. Get out of the market take your loss and wait for another opportunity.
- 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 change in trend.
- Avoid increasing your trading activity or position size in case of long period of success or a period of profitable terms. May be there is a conjunction point and soon the reverse will start happening. So safeguard yourself. Also the correction which could be in price (if you lose it’s a price correction) and if you pass the time by going holidays or using the time for research or studying the markets this is time correction of your profits of says sideways movement after which you will be ready for another up move in profits.
- Don’t guess when the market will top. Let the market prove it is at top. Similarly don’t don’t guess when the market is in bottom. Let the market prove that. By following the definite rules you can do this.
- Don’t follow another man’s advice (trader/ analyst/ news channel/friend/elders) unless you know he knows more than you.
- Reduce trading after first loss, never increase the position size in this case
- Avoid getting in wrong and getting out wrong; getting in right and out wrong, this is making double mistakes.
When you decide to make a trade ensure that you do not violate any of these trading rules. These rules are vital and important to your trading success. Whenever you close any trade with loss go over to these and see which rule you have violated. Do not make the same mistake again the second time. Experience and investigation will convince you of the value of these rules. And observation and study will lead you to correct and practical theory and successful trading in stocks/commodities/currencies.