Lessons From The Great: WD Gann Teaches You How to Trade

In Summary:

• WD Gann was among the most successful traders on Wall Street
• His teachings on pattern, price, and time, are still applicable in today’s market

Who Is WD Gann?

William Delbert Gann, or WD Gann, was a legendary trader. He was shrouded in mystery mainly because of his unique approach to trading. Gann was a market technician, meaning he would interpret the charts. He took decisions based on what the chart told him.

More interesting, however, is a deeper path he would take in his efforts to win in the trading game. He claimed to have discovered the secret of consistently and accurately predicting the movements of the market. To better understand the man and his trading legacy, let’s explore his background.

WD Gann was born on June 6, 1878, in Lufkin, Texas. As a child, he displayed a keen interest in mathematics and numbers. In his twenties, he discovered stocks and commodities and started trading at the age of 24.

Initially, his trading endeavors would lead him to lose large amounts of money. Having been born in a poor family of a cotton farmer, he wanted to improve his trading and become successful. Gann began looking for certain price patterns and mathematical models that would develop in certain time cycles.

Lessons From The Great – Gann’s Methodology Explained

Gann had a special interest in the relationship between price and time. More precisely, the “square” of price and time, as he referred to it, would lead him to unravel an entirely new path to markets.

At a time when most traders were focusing on fundamental analysis, Gann’s revolutionary method relied on technical analysis. This included mathematics, time cycles, and the strong conviction that past market performance could predict future activity. Gann’s market research consisted of him pulling together thousands of charts displaying daily, weekly, monthly, and yearly prices. What he discovered then would become the bedrock of his trading strategy: a rule he called “the Law of Vibration.”

The Law of Vibration, Gann claimed, could be observed not only in natural sciences but also applied to the financial markets. Moreover, he so refined this methodology that once a stock started to move up or down, he would pinpoint where the price would land next.

One of the best examples of his trading style in action is when his law would accurately forecast the stock market crash of 1929. The financial meltdown, and the subsequent Great Depression, were detailed one full year in advance in Gann’s “Annual Stock Forecast,” a newsletter to his subscribers.

WD Gann was able to trade any market in any environment regardless of what was going on at the time. In other words, he would practice his methods and make money trading in everything. Since commodities were popular at the time, his focus was on cotton, coffee, sugar, wheat etc. James Hyerczyk, an analyst of Gann’s trading record, confirmed this.

In the span of only 25 trading days, Gann made 286 trades, 264 of which were profitable. That makes a success rate of 92.31%. His initial capital of $450 has ballooned to $37,000 during that time.

Gann And His Chart-Reading Techniques

It has been said that during his trading career, WD Gann started with a few hundred dollars and turned them into over $50 million. This figure, however, is unsubstantiated. However, his trading laws and methods have helped him pocket millions, as brokerage statements indicate. Upon his death, he left a net worth of around $5 million.

WD Gann would say that all you needed to be a successful trader was to learn how to properly read the charts.

Gann’s greatest trades are a result of sticking to a trading strategy based around interpreting the chart. “Charts are the only guide we have of what stocks have done and by which we may determine what they will do,” Gann would say.

Gann And The Biblical Teachings

Gann was a strong believer in the Bible and considered it the greatest book ever written. He believed the Bible could help people understand how natural laws worked, and even applied certain teachings of the Bible to the financial market.

He was particularly fond of quoting a passage of Ecclesiastes:

“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.”

This was another element in building out his theory that prices tend to repeat their behavior and forecasting them was possible.

How To Trade Like WD Gann

After this introduction to Gann and his methods, let’s see how he actually did it. The basics of his theory, as we mentioned, are pattern, price, and time. Patterns, Gann claims, can be found anywhere and are those specific recurrent price formations in any chart. These patterns, he says, could be recognized and could be used to forecast price movements.

Price was another factor with special emphasis. By “price”, Gann meant that traders should always observe the price of the stock or other asset as it could reveal key insights. He would focus on the price and compare it to a previous high or low to get a sense of where it could head next. Prices, he believed, were a reflection of mathematical sequences.

And time, the third basic principle, is of the greatest importance. Time cycles are especially significant in Gann’s work for they reveal how trends form, how long they last, and when they end.

Why Gann’s Work Is Still Important Today

If you devote time to study Gann’s basic principles, you will understand how he approached any chart the same way. Unbiased, emotion-free and relying on concrete laws to guide his decision making.

The study of pattern, price, and time, pulled together, shows you how to find the interlocking relationship between them. Each of these three primary factors has a certain influence on the market. For example, in one moment, price may dominate, while in another, a pattern may emerge and exert dominance.

The balance of these ideas, Gann states, could help you find the best trading opportunities, regardless of market.

Role Of The Law Of Vibration

A single theory, formulated by WD Gann, was largely responsible for his trading achievements. His study of scientific laws and his observation of laws governing nature and motion led to the discovery of the “Law of Vibration.”

Gann’s biggest revelation was that this law governs the motion of everything, from humans to planets, and that it could be seen at work in the marketplace.

• “I soon began to note the periodical recurrence of the rise and fall in stocks and commodities. This led me to conclude that natural law was the basis of market movements,” Gann says in an interview in the early 1900s.
• “After exhaustive researches and investigations of the known sciences, I discovered that the law of vibration enabled me to accurately determine the exact points at which stocks or commodities should rise and fall within a given time.”
• Through the Law of Vibration, Gann argues, every stock, commodity, or currency, moves in its own distinctive style. Specific moves depend on intensity, volume, and direction.

Summary

WD Gann was among the most successful and accurate traders in the history of Wall Street. More importantly, he would share his knowledge with other market participants. Even though his methodology is still a mystery, his experience serves as proof that his laws worked, and his story continues to inspire new and old traders alike.

During his lifetime, he left a legacy of seven books and numerous trading courses. He wrote his books in an easy-to-read manner, traders say they contain in-depth insights revealing how he traded. Moreover, popular volumes such as “The Truth of the Stock Tape” and “Wall Street Stock Selector” discuss the basis of his theories. Others, such as “The Tunnel Thru the Air”, present his teaching in a more complex and ambiguous way.

Many of today’s successful investors are inspired from his teachings and new traders continue to pore through his work. To this end, Gann’s methods are still applicable today and they continue to influence modern-day traders and investors. Like WD Gann, other historical traders have a lot to teach us all about the simplest and the most sophisticated ways to trade. George Soros and Jesse Livermore are two such names that certainly deserve your attention.