W.D. Gann – A Revolutionary Man
William Delbert Gann is one of the most mysterious traders of all time. Not much is known about his personal and trading life. Many have said that Gann was not a known figure of his time while some, like Ken Fisher have stated their open admiration for Mr. Gann. For starters, W.D. Gann is known for writing some of the best trading books of all time. Some of his books are: 45 years in Wall Street, How to make Profits in Commodities, and Truth the Stock Tape among others. Gann has feature in various lists. In Ken Fisher’s book, 100 Minds that Made Wall Street W.D. Gann is featured. He is also featured in a list of the most famous traders of all time. Apart from that, nobody knows much about his family, origin, and his trading track record. This article looks at five of the key trading rules from W.D. Gann.
#1 – Never Overtrade
Too much of everything is poisonous. I am a firm believer that overtrading is one of the most dangerous things that a trader can ever do. Overtrading involves opening and trading multiple trades on a single day. Here, you can open trades in a simultaneous way or open and close multiple trades at different times. The fact is that overtrading will lead you to a path of multiple losses. W.D. Gann believed that traders who overtraded were putting themselves in a trap. The best way to go about it is to open only a few trades per day. I recommend that you open between two and three trades on a daily basis and set realistic goals.
#2 – When in Doubt, Get out and Don’t Get in When in Doubt
Doubt is one of the most important mistakes you should try to avoid in your trading career. Before you make any trading decision, it is important to be confident of what you are doing. One way to remove the doubt is to have a trading guide. This guide, which you should backtest should help you know when to enter a trade and when to move out.
#3 – Trade Only in Active Stocks
As a trader, you are merely buying to sell. You don’t buy shares of a company because you believe that it will be good in the next 10 years. In the earnings season, you simply buy the company if you believe that its results and guidance will be good. Active stocks such as Facebook and Apple are good because of the huge movements that they have. On the other hand, inactive and illiquid companies will not make you money because of the small movements. The same is true with currencies. Instead of wasting your time in emerging markets currencies, you should focus on the major currencies such as EURUSD and GBPUSD which are relatively volatile. In commodities, you should focus on oil and not orange juice.
#4 – Divide Capital Into 10 Equal Parts and Never Risk More
In trading, the most certain thing is uncertainty. There is no certain way of predicting the market. For instance, there was no way of predicting that Switzerland would remove the peg on their currency. It was also not possible to predict that Turkey would down a Russian plane. There was also no way of predicting the Japan’s earthquakes. When such events occur, the market is affected and everyone in it becomes a victim. Therefore, W.D. Gann developed a rule of never risking 10% of capital on one trade.
#5 – Never let a Profit Run Into a Loss
This is a rule I wished I knew when I was new to trading. The mistake of letting a trade run into a loss is a major one. This is where a trader has a profiting trade and then waits for it to make more profit only to make a loss in it. To avoid this, you should ensure that you know how to take profits. Waiting for the trade to make more money will end up costing you a lot of money. A few years ago, I let a trade with a $3000 profit go down to $1400 because I was aiming for it to reach $3200.