If you have been studying and practicing technical analysis for a while now or you are a trader, you must have heard or seen the name of W.D. Gann and his theory for trading. Even your list of indicators will have the name of Gann at least once. Well, who was Gann? Why is he sought out even after 60 years of his death? Let us find out.
William Delbert Gann or WD Gann was born on June 6, 1878. As a finance trader, he started his trading career in 1902 when he was 24. He developed numerous technical analysis tools such as the WD Gann Angles, Circle of 360, Square of 9, Hexagon and many others. Most of his works are based on astronomy, geometry, astrology and ancient mathematics. Most of these were so powerful, that they are used widely by traders even today. Gann theory on intraday trading is one of the most successful method for day traders now.
Among the many indicators and technical tools, WD Gann laid down some basic rules to be followed for trading: –
- If the high price of the entire week is achieved on Friday, expect higher prices next week.
- If the low price of the entire week is achieved on Friday, expect much lower price next week.
- In a highly uptrending market weekly low is achieved on Tuesday.
- If the market is in a strong downtrend (if the main trend is down), the weekly highs are generally achieved on Wednesday.
- When the price crosses the high of the last four weeks, it’s an advance indication of more higher prices.
- When the price breached the low of the last four weeks, it’s an advance indication of more lower prices.
- In an up trending market, if the prices break the 30 DMA & remain below it at least for 2 consecutive days, it tells us of a much greater correction (vice-versa).
- If the market rises for 5 consecutive days, there is a high probability that correction will be lasting for 3 days. (Ratio is 5:3).
- When the price starts rising from a particular level, Rs.100 or 100% rise whichever is earlier becomes a strong resistance.
- When price crosses the high of the last 3 days it tells us about much higher prices on the 4th day. (Traders can buy it on the 4th day and place an SL order Rs. 3 below the last 3 days high) (vice-versa).
- If subsequent correction is greater than the previous correction both in terms of price & time magnitude, this is an advance indication that trend is changing.
- 50% of the last highest selling Price is the strong support area. Any stock which is trading below this 50% level is not that useful for investment.
- If a price is rising for 9 consecutive day’s at a stretch, then there is a high probability of a correction for 5 consecutive days. (Ratio is 9:5)
- Don’t ignore a Double Bottom & Triple Bottom signal on a monthly chart, after a minimum gap of 6 months. ( advance indication for mid-term investment)
- Don’t ignore a Double Top & Triple Top signal on a monthly chart, after a minimum gap of 6 months. (Not the right place for investment/entry, the price may fall).
- When the price is in a choppy phase, or in a consolidation phase, if a sudden volume spike is found there, it’s an advance indication that trend is likely to change.
- In a quarterly time frame, when a particular stock crosses the high or low of the last quarter (in the quarterly chart) it’s should be considered as an early indication that the underlying trend is trying to reverse.
Make sure that you do not violate any of these trading rules if you decide to make a trade. These rules are essential and very important to your successful trading. Whenever you close any trade with loss go over to these principles and see which principle you have violated. Do not repeat the same mistake again the second time.
With experience and investigation, you will be able to find the value of these rules. And observation and study will lead you to correct and practical theory and successful trading in stocks/commodities/currencies.
Though these rules will provide you a basic guideline for trading and investing in the Stock Markets, you must know that without proper strategies, all your efforts will be futile.