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Gann Made Easy The Treatise
‘A Man Who Never Changes His Mind Will Have No Change To Mind’ William. D. Gann
Telephone 0161 285 4488 || Email:
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William. D Gann. He was one of the most successful traders that ever lived. Born in Lufkin, Texas on June 6, 1878, William D Gann started commodity trading and stock market trading in 1902, and moved to New York City in 1908, opening his own brokerage firm, W.D. Gann & Co., at 18th and Broadway. William D Gann took more than 50 million dollars in profits out of the markets! In today’s markets that would be closer to 500 million dollars! After many decades of incredible trading success, W D Gann moved to Miami, Florida where he continued his writings and studies up until his death on June 14, 1955. So accurate were W.D. Gann’s techniques that in the in the presence of representatives of a major financial publication, he made 286 trades in a period of 25 market days, on both the long and short sides of the market. Of these, 264 trades were profitable! Read articles on W.D. Gann in our Trading Resources Articles. In 1933 Mr. Gann made 479 trades during the year. 422 were winners and 57 were losers. The return on his capital was a staggering 4000%. Mr. Gann consistently repeated these incredible trading feats, issuing amazing forecasts in a number of markets one year in advance. His use of Natural Law and geometric proportions based on the circle, square, and triangle are as effective today in the Stock Market and Commodities Markets as they were 50 years ago. His techniques work in any market. His methods seem a bit unusual and even mystical to many traders, but they have proven themselves time and again over the past century. Since his death, W.D. Gann has become something of a legend in financial circles. His capacity to make big financial gains (both on the market, the Cuban lottery and horse racing) gave him a reputation for uncanny knowledge of market trends.
THE PROGRAMME INTRODUCTION
2
Preplanning
1:
6
FINDING THE DECISION LEVELS
7
A: The 1st Check -The Major Gann Levels
10
i) The G1 Level ii) The G2 Level iii) The G3 Level iv) The G4 Level Rules To Apply
B: The 2nd Check C: The 3rd Check D: The 4th Check E: The 5th Check F: The 6th Check G: The 7th Check -
2:
11 12 13 14
Percentages 50% Retracements The Lesser Levels Past Tops and Bottoms Triple Tops and Fourth Attempts Natural Number Levels
TRIGGERING THE SIGNAL
29
A: The Trend Indicator Line
30
A New High & Low on the Same Day A 'Within' Day The Application of a Trend Indicator Line
30 30
31 32
B: The Trigger To Buy i) The Action on Prices Rising to a Decision Level ii) The Action on Prices Falling to A Decision Level
C: The Trigger To Short i) The Action on Prices Rising to a Decision Level ii) The Action on Prices Falling to A Decision Level
3:
TAKING PROFITS A: Taking Profits After Buying
4:
15 18 20 22 24 26 27
33
34 35 36 37
39 40
i) Taking Profits After a Fast Rise
41
B: Taking Profits After Shorting
42
ii) Taking Profits After a Fast Fall
43
LIMITING LOSSES A: Cutting Losses After Buying B: Cutting Losses After Shorting
IN CONCLUSION THE CASE STUDY The Japanese Nikkei Index
45 46 47
50
16,17,19,21,23,25,28,48-49
INTRODUCTION
I
t was on a hot, sunny, Spanish day in August 1972 that I found myself wandering my weary way down a back street of the historic Majorcan city of Palma. Normally I would have found the weather and the environment exhilarating. However, on this occasion I was walking with a heavy heart for I was returning from the local hospital where my three year old son was suffering from a very badly crushed foot after an accident in the hotel in which we were staying. In order to while away some time and relieve my anxiety, I decided to call into a small bookshop which I had noticed on the far side of the narrow street in which I was walking. I entered. The step I was about to take would change the rest of my life.
Eight years previously I had set up an Insurance Brokerage which had developed from a generalised insurance service to become a specialised pensions adviser for small to medium sized companies. The unitised pension contracts we sold gave companies the option to direct their capital into general areas of investments such as the stock market, the bond markets, cash and the property markets. As there were considerable amounts of money involved it was obvious that a sound advisory service to assist in the switching of funds would be of great value to our clients.
was badly affecting my ability to run my business. When my capital was halved I took a deep breath and sold all my holdings. The relief was incredible. My excursion into an area in which I had no knowledge had ended in disaster, as indeed it should have done. Ignorance is bliss perhaps, but ignorance of the financial markets is almost always disastrous for your financial health. I was on my way to the realisation that there are very few who have the right to call themselves specialists or professionals. Most are totally unaware as to how the markets truly work. They guess, and they guess, and they guess again ~ until their ignorance is exposed. Idiots can sure play bull markets but bear markets sure destroy them.
The UK stock market prior to the Spring of 1972 had had a good rise and it seemed fairly easy to make money, especially to a young naive investor from the industrial North of England. I decided to give the opportunity of investing my capital of £100,000 to my local Broker, with the promise that if his recommendations were satisfactory then the opportunity to manage the pension monies under our control would be granted to him. My nightmare soon began. As soon as I entered the stock market it topped out and my capital dived in value. I was confidently assured at regular intervals that all would be well, we were just experiencing a short term correction. (Things never change, do they?) However, matters went from bad to worse. I could not sleep and suffered from cold sweats, & I soon found that the worry
I entered the market in the third guess stage with the onslaught of the worst bear market in Britain ever just ready to happen. The market collapsed by 80% in less than three years.
4
After my ignominious exit from the market there were decisions to be taken: Should I run away and leave my clients to their own devices? Should I attempt to find a more competent adviser? But where would this saviour be found, and how would I recognise his ability? Or perhaps I should teach myself to do the job, despite my total ignorance. Yet where would I find the knowledge & experience to find success?
I
t was to recover emotionally from my ill-fated market experience and to consider my dilemma that I found myself in Palma walking into a minute second-hand bookshop down a tiny back alley with not a person in sight. Hardly a scene to trigger a set of circumstances that would eventually give me a knowledge which would change my life so completely and pave the way for an experience full of satisfaction and contentment. My life as a technical analyst and investment adviser was almost on its way! A little sun streamed in through the tiny shuttered windows of the bookshop, just allowing me, after a brief adjustment, to note that the books were written in Spanish. Being English, and therefore devoid of any talent in foreign languages, my interest rapidly diminished. I was about to leave when I noticed the back of a book, the faded drawing of the Wall Street Stock Exchange just peeking out from under a large book on the life of the Spanish painter Goya.
whole method of calculation". What a remarkable statement to make. How was it possible to so accurately determine tops of markets? The proof of a lifetime's work apparently depended upon the price of wheat before the close of trading on that day being at the 120 level. This statement I found astonishing, and still do. I opened the book and was confronted with figures, comments, statistics, charts and prices in what could only be described as an assortment of ideas in no apparently logical order. The writing style was confused and showed no fluency but my interest was still, surprisingly, aroused.
The cover was a bleached orange with appallingly small white print, almost impossible to read in the half-light. If I were to duplicate the circumstances with my present flawed eyesight, I would probably have left and my life would have taken a much less rewarding path. The author was a severe looking man named William D. Gann. Despite the poor print I was able to read the following :
Excited, I bought the book immediately. I couldn’t wait to get back to the hotel pool where I read, and read, and read. Yet in spite of my original excitement, I couldn’t come to terms with the proposition put forward by Gann that market movements are mathematically based and that the en masse judgements of the world's investors can be assessed by simple mathematical principles. A mistake that took me over 5 years to correct!
‘Oneofthemostastonishingpredictionsmadeby Mr. Gann was during last summer [1909] when hepredictedthatSeptemberwheatwouldsellat$1.20. Thismeantthatitmusttouchthatfigurebeforethe endofSeptember.Attwelveo’clockChicagotime,on September30th(thelastday),theoptionwasselling below$1.08anditlookedasthoughtheprediction wouldnotbefulfilled.Mr.Gannsaid."Ifitdoesnot touch$1.20bythecloseofthemarket,itwillprove thatthereissomethingwrongwithmywholemethod ofcalculation.Idonotcarewhatthepriceisnow,it mustgothere."ItiscommonhistorythatSeptember wheatsurprisedthewholecountrybysellingat$1.20 andnohigherintheverylasthouroftrading,closing at that figure.’ After my experience of the sheer ignorance of some market operators and my own nightmare, this was a bolt from the blue.: "Ifitdoesnottouch$1.20bythecloseofthemarket, itwillprovethatthereissomethingwrongwithmy
5
My interest in technical analysis stimulated, I got down to work to accumulate data, and I commenced my onslaught by reading every book I could lay my hands on on this fascinating study. I read 135 different books over the next few years and came to the conclusion that most were written by intellectuals in order to satisfy their egos or were the meanderings of amateurs. I decided that the fundamental approach was not for me. There was far too much guesswork and I found it difficult to believe in the accounts as presented by the auditors.There were far too many accountants' deceptions to be considered before taking a view.
I
resolved to leave the guessing game to others and I am delighted to have done so as I know of only a few using this approach who have been successful. The performance of funds managed on fundamentalist principles, this being the vast majority, fail in the main to keep ahead of the averages. At the end of a 5 year period I had consumed much and thrown most away. I was left with an interest in Joe Granville's moving averages; the pattern principles of R. N. Elliott; and the mathematical assessments of W. D. Gann. During that time I had found the bottom of the 1972/1975 bear market and had delighted my pension clients by keeping them liquid in the frightful fall of 1974 and then entering the market in the last week in December 1974. (SEE CHART 1)
CHART 1
FINANCIAL TIMES (1972 - 1977)
I entered the market just before the top. Buy Signal Mon 3 Jan 1972 to Fri 30 Dec 1977
Monthly
Nevertheless, all was not well. Overall, the practice of combining a number of differing principles had, like mixing the primary colours together, produced a murky grey mixture of success and failure. Granville's moving average techniques had a detrimental psychological effect, being by nature late in triggering buy and sell signals. More importantly, the technique is doomed to failure when floundering in trading ranges, where a series of damaging losses are inevitable. The Elliott wave principle was an interesting intellectual exercise but with, for me, severe inherent problems. In the corrective stages there are a myriad of alternatives to come to terms with and there is always doubt as to where the waves commence, thus leaving many questions unanswered. Doubt is one of the trading curses, and a luxury the investor can do without. My breakthrough occurred when I realised that I had had the answer back in 1972 when my son's misadventure directed me to that small second-hand bookshop where, by chance, fate had placed ‘45 Years in Wall Street’ by W. D. Gann, with just a little of the book peeping out from under a testament to that great painter Goya. The purpose of this treatise is to introduce the basic principles of one of the world’s great traders, W. D. Gann, and so supplement the Gann books that have just been translated into the Japanese language.
6
P
erhaps the predominant reason for Gann’s methods not being used more widely is that practitioners in the early stages of development generally concentrate on the sophisticated aspects of the techniques which, whilst having a magical fascination, require long and concentrated study. This can be a very rewarding intellectual exercise but it complicates the issue and does not provide early practical assistance in making profits on the markets. Above all, it should be realised that Gann made most of his fortune in the early part of his life before he discovered the sophisticated aspects of his analysis. A further constraint on appreciating the genius of Gann is that his most rewarding techniques were not disclosed to the general public in his books, reserved as they were for those who paid for his exclusive courses. It is therefore difficult for the student to both fully absorb and then practice the method without an extensive period of study. In my case it took me several years to first absorb the information and then place it into its historical context. It was then necessary to analyse it before coming eventually to the realisation that, by simplification, the discoveries could provide a discipline to open up a comparatively easy route to profitable investment. In fact, the less sophisticated the investor, the better the chance of success. Consequently, the following method has been developed to eliminate the need, at least in the early stages, to delve into the more academic aspects. New students, even without any previous knowledge of technical analysis, can commence trading profitably within a few months of study. My 15 years' experience of teaching thousands of Gann students has taught me that the simpler the chart the more profitable the results. My endeavour will be to be as clear and as precise as possible with the help of simple but helpful charts. In this essay I will submit the step-by-step procedure I teach which I have discovered over the past few years has the maximum impact on new Gann students without assaulting their intellectual capabilities. Perhaps a more comprehensive book will follow, but I am certain that an understanding of the basics and their application will be much more helpful than diving in the deep end at the outset.
7
PRE-PLANNING The biggest advantage Gann's rules bestow upon his students is that the system is the only one I know which allows ‘advance’ planning of trades and is not laggard in nature. It allows the investor to isolate ‘decision’ areas both above and below the current value of the analysed investment. The levels can be identified weeks, months or even years in advance! (SEE CHART 2). If and when these pre-determined areas are reached, a buy, sell or hold decision process based upon the daily moves is followed.
CHART 2
MITSUBISHI HEAVY IND.
300%
200%
66.66%
The lows of 1990 & 1991 were calculated from information dating as far back as 1982 and finally confirmed from the 1989 top (also the absolute high).
-50% 25%
Mon 1 Mar 1982 to Mon 25 Oct 1993
Monthly
However, there is no certainty that the levels will be reached :
Ö
Never anticipate that the signal will be a buy or a sell.
Ö
A pragmatic approach at this point is vital.
Ö
Let the market tell you what to do.
8
1: FINDING THE DECISION LEVELS
9
O
ne of the most important discoveries Gann made was that there is a relationship between every low price and every future high price. Also, for every high price there is a relationship to every future low price.
If this claim is true, then by studying historical data the investor can establish all important future highs and lows. That this is possible is clearly demonstrated by CHART 3, the weekly variant of which was published in the Euromoney training manuals early in 1992 and which isolated nine months in advance the exact top of the British Pound’s rally against the US Dollar.
CHART 3
POUND/US DOLLAR SPREAD (X 100) 25%
33.33%
Thu 1 May 1986 to Thu 21 Oct 1993
Monthly
This is an exciting prospect which, as a Gann student of 20 years, I now take for granted but which most find difficult to accept. It is now my challenge to put before you the rules which will enable you to establish these turning points for yourself, perhaps even decades in advance as evidenced by CHART 4. CHART 4
MITSUBISHI BANK LTD
The lows of '90 & '92 were foreseen from data as far back as 1983.
-66.66%
200% 75%
Mon 3 Jan 1983 to Fri 22 Oct 1993
10
Monthly
T
h e following approach introduces a procedure which leads the investor through a series of tests and then ultimately provides the levels at which to consider buying, selling or shorting. It would be beneficial if you were to take each step at a time in a logical fashion rather than skip from one step to another in a haphazard way.
A word of warning : Due to the nature of Gann’s techniques it is vital that you use accurate and regularly corrected data. Ö
Traded prices must be used, not quoted prices.
Ö
As much back data as possible should be to hand with an absolute minimum of five years.
Ö
Do not assume that data from the providers is necessarily accurate. Check it out for Gann will not work on inaccurate data.
The chief reason why I did not realise the real significance of Gann in my early years was that I was using inaccurate quoted prices. A mistake that wasted several years of profitable trading & resulted in the unnecessary checking out of other, inferior methods of analysis.
11
A: THE 1ST CHECK - THE MAJOR GANN LEVELS Gann considered one of his greatest discoveries to be the calculable relationship between historic highs and lows and future levels of intermediate highs and lows. I call these the MAJOR Gann levels, being the first levels to place on the chart. (The levels are established by referring to the historical highs and lows, after adjustments for rights and scrip issues.) For ease of reference the levels are coded as follows :
G1
G2
12
G3
G4
I)
THE ‘G1’ LEVEL
This ‘G1’ level is the most important of all Gann levels and is found by simply taking the extreme high price and dividing it by two. It is therefore 50% down from the extreme high price.
Example If the historical high price is 2,200, then dividing 2,200 by 2 results in the G1 level being put at 1,100. (This G1 level of 1,100 would then be placed on the chart, provided it is in reasonable proximity to the current price. If it is not, then it should not be placed on the chart as it would detract from the clear picture we are attempting to create.) The power of this level can be judged by CHARTS 5 & 6.
CHART 5
HONG KONG HANG SENG INDEX
Historical High
The G1 Level Mon 2 Dec 1985 to Thu 21 Oct 1993
Monthly
CHART 6
DOLLAR YEN SPREAD The 'G1’ level here is based on the 'All Time High' of Jan 1972 The G1 Level
Mon 1 Nov 1983 to Thu 21 Oct 1993
13
Monthly
II)
THE ‘G2’ LEVEL
This is the second most important level and is found by adding the historical high and low together and then calculating the mid point by dividing the result by 2.
Example If the historical high is 2,200 and the historical low is 1,100, then the total is 3300 which, if divided by 2, results in the G2 level being placed at 1,650. (Only place the G2 level on the chart if it is in reasonable proximity to the current price.)
Note the power of this level on CHARTS 7 & 8.
SPAIN MADRID SE
CHART 7 Historical High
The G2 Level
Historical Low
Mon 3 Sep 1979 to Thu 21 Oct 1993
Monthly
CHART 8
AUSTRALIA METALS & MINERALS Absolute low: Jan 1975
Note that the levels are as effective as selling levels as they are as buying levels. The G2 Level G1 G4
Mon 1 Jul 1985 to Fri 22 Oct 1993
14
Monthly
III)
THE ‘G3’ LEVEL
The third most important level is found by dividing the historical high price by 4.
Example If the historical high is 2,200 then, having divided by 4, the G3 level is placed at 550. (This level should be placed on the chart only if it is in reasonable proximity to the current price.)
Note the power of the level on CHARTS 9 & 10.
CHART 9
YEN INTEREST RATES (3 MTHS) Historical High
G2 G1 G4
The G3 Level Mon 3 Sep 1979 to Thu 21 Oct 1993
Monthly
CHART 10
FUJI BANK Historical High
The G3 Level Mon 1 Jul 1985 to Fri 22 Oct 1993
15
Monthly
IV)
THE 'G4' LEVEL
This level is 25% of the difference between the historical high and low added to the historical low, and is calculated as follows :
Example Historical High 2,200 Less Historical Low 1,100 Difference 1,100 Divide by 4 275 Add to the Historical Low 275 + 1100 = 1375 = the G4 Level Note the power of this level on CHARTS 11 & 12.
CHART 11
MITSUBISHI BANK LTD
Historical High
The G4 Level Historical Low Mon 1 Jan 1979 to Fri 22 Oct 1993
Monthly
CHART 12
MITSUBISHI CHEMICAL IND. Historical High
The G4 level supplied support in 1990 and resistance in 1992.
The G4 Level
Historical Low
Tue 1 Jan 1980 to Fri 22 Oct 1993
16
Monthly
T
hese then are the most important levels to influence future prices and are the first calculations to make when anticipating future highs and lows. They should not be used in isolation but should become the first and most important of the series of checks which will direct your attention to an important turning point in the future. The first step has been taken. Now it is important to adhere to the following rules in order to interpret the current price in the context of these levels. Very often the rules will have a profound effect on your assessment of the current position and of possible future developments.
RULES TO APPLY TO THE ‘MAJOR' GANN LEVELS RULE 1 The first time the level is hit is always the strongest and safest point to buy against the trend. Each subsequent test is less safe but still a strong point for a change in trend. (SEE CHART 5). RULE 2 The levels are both support and resistance points and are equally effective in reversing both falls and rises to the levels. (SEE CHARTS 8 & 9). RULE 3 If the G1 & G2 levels are far apart there will often be a trading range within the levels. (SEE CHART 9). RULE 4 If the G1 level is broken on the down side, in the vast majority of cases the fall will only be reversed when it hits the G3 level. (SEE CHART 9). RULE 5 If the G1 level is broken and the G4 is between the G1 & G3 levels there will often be a rally from the G4, but this will be only temporary in nature as the likelihood is that the rally will reverse & finally fall to the G3 level. (SEE CHART 8). RULE 6 If the G1 & G2 levels are wide apart the midpoint between the two levels often proves to be a support and resistance level.
TO SUMMARISE The G1 Level = 50% of the extreme high & zero. The G2 Level = 50% of the total of the extreme high & extreme low. The G3 Level = 25% of the extreme high & zero. The G4 Level = 25% of the extreme high & extreme low added to the extreme low. These then are the first calculations to place on your chart, from which the major turning points of the future can be determined . Rules 1 to 6 will give you an insight as to where you stand when you first make your analysis & will allow you to reassess your position as time passes. If, for instance, you are below the G1 level, you will probably see a fall, firstly to the G4 level & then to the G3 level.
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THECASESTUDY-TheJapaneseNikkeiIndex The Japan Nikkei has been chosen as our case study in which we will follow each check to the final conclusion. The study should anticipate all the major turning points of the index. Each step will be taken after the relevant section has been explained. Using this procedure will help to develop the analysis in a logical manner. The analysis should be looked at as a jigsaw puzzle and the aim is ultimately to place all the pieces correctly to construct a complete and clear picture. CHART 13
JAPAN NIKKEI SPREAD (X 10) The object of this case study will be to prove that the path of the Nikkei is not random but follows the rules laid down by W.D. Gann.
Mon 3 Mar 1975 to Fri 22 Oct 1993
Monthly
I have every confidence that the techniques will achieve this purpose to your total satisfaction. The same exercise can be applied to all financial indices and instruments anywhere in the world, whether they be individual shares, commodities, currencies, interest rates, bonds etc. In the dozens of seminars and workshops I run each year I challenge the delegates to pick any investment to test whether or not it is ruled by the Gann principles laid down in this treatise. Over the last decade the Gann analysis has never let me down. Despite the lack of preparation I know of no other technique in which proponents are prepared to take on this task. Gann techniques once mastered are magical in their application to the whole of the speculative markets. I hope the following case study will go some way to proving the point.
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CASESTUDYNO1 JapanNikkeiIndex-THEMAJORGANNLEVELS ThemajorGannlevelscomputeasfollows:theG2(21,375);theG1(19,475);theG4(12,588) &theG3(9,738). JAPAN NIKKEI SPREAD (X 10)
January 1990 : All Time High
July 1975 : All Time Low Mon 3 Mar 1975 to Fri 22 Oct 1993
Monthly
The January ’90/ October ’90 fall was arrested by the G1 level. The March ’91/August ’91 fall was arrested by the G2 level. The break of the G1 level in April ’92 suggests that the index will fall to the G4 level, where a rally can be expected, but that eventually the index is likely to fall to the 9738 level. The rally under the G1 level was thwarted by the upside resistance caused by the G1 level.
Up to the time of writing the index has acted strictly in accordance with the major Gann rules and levels. CHART 14
JAPAN NIKKEI SPREAD (X 10) The break through the 'G1' level suggests an eventual fall to the 'G3' level. G2
G1 G4
G3
Mon 1 Jul 1985 to Tue 26 Oct 1993
19
Monthly
B: THE 2ND CHECK - PERCENTAGES This is the second most important check and the one on which I place most emphasis when determining the decision levels. Certain predetermined percentages calculated from past significant tops and bottoms (or highs and lows) are placed on the chart and will help to identify future tops and bottoms. Decision levels will be established when the calculations fall within a series of close bands. The rules assert that all future tops and bottoms have a mathematical relationship with past tops and bottoms. Here this means that future rises and falls will be controlled by the following percentages calculated from important past tops and bottoms: The base percentages are 25% and 33.33%. To this base the following multiples and divisions from tops and bottoms are added :
25%** 50%***** 75% 100%* 125% 150% etc
25%** 12.5% 6.25% 3.125% etc
33.33%** 66.66%* 100* 133.33% 166.66% 200%* etc
33.33%** 16.66% 8.33% 4.165 etc
Note - * indicates degree of strength ie. importance.
The most important percentage is the 50% level from past important highs and lows. The next in order of importance are the 100/200/300% etc. If the 25% and 33.33% levels occur at the same level, this is as important as the 50% level. The 25% & 33.33% in isolation are next in importance. The rest follow. First identify the significant highs and lows, then apply the 25% percentages followed by the other percentages calculable from these levels. Next find the levels which fall into groups above and below the current price. The objective is to find a series of percentages which group around the other checks especially the Major Gann levels and the 50% retracements. (SEE NEXT CHECK). When the bands of upper resistance and down side support have been established, take off all the other levels to leave an uncluttered chart with which to assess your future trades.
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CASESTUDYNO2 JapanNikkeiIndex-PERCENTAGEMOVES Now we turn to look at how the top of each rally could have been anticipated by applying the set percentages as provided by the 2nd check.
CHART 15
JAPAN NIKKEI SPREAD (X 10) 12.5% 12.5% 16.66%
16.66% 25% 33.33%
-25%
Mon 1 Jan 1988 to Tue 26 Oct 1993
33.33%
Monthly
The January 1990 extreme high at 38,950 : a) 16.66% from the June ’89 low was 38,393; b) 12.5% from the September ’89 low was 38,378; c) 12.5% from the October ’89 low was 38,779. The July 1990 high at 33,190 : a) 16.66% from the April ’90 low was 32,291. The March 1991 high at 27,270 : a) 33.33% from the October ’90 low was 26,373; b) 25% from the December ’90 low was 27,037. The September 1992 high at 19,280 : a) -25% from the November ’91 high at 18,876; b) 33.33% from the August ’92 low at 18,920.
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C: THE 3RD CHECK - 50% RETRACEMENTS The half way point, or 50% point, of any move is always a good level at which to expect a reversal. The longer in time and the wider the rise or fall, the more significant the level. For instance, the G2 level is the 50% retracement of the historical high and low and is therefore the most important, especially if the period between these two levels is a long one. However, the 50% level of a move only lasting a few weeks can be significant, especially when it falls in line with the other checks. If you are a short term trader then the 50% level of daily or hourly moves becomes significant. Leave the 50% levels on the chart where and when they support the levels formed by the first two checks. Remove all the others.
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CASESTUDYNO3 JapanNikkeiIndex-50%RETRACEMENTS CHART 16
JAPAN NIKKEI SPREAD (X 10) r.5 r.5
r.5
Mon 1 Jul 1985 to Fri 22 Oct 1993
The July 1990 high was at 32,840 : the 50% retracement of the January ’90 top (38,710) and the April ’90 low (27,680) is 33,195.
TheMarch1991highwasat27,270: the 50% retracement of the July ’90 high (32,420) and October ’90 low (19,780) is 26,100.
TheSeptember1992highwasat19,260: the 50% retracement of the January ’92 high (22,200) and the Aug ’92 low (14,190) is 18,195.
23
Monthly
D: THE 4TH CHECK - THE LESSER LEVELS (Note only - Do not place them on the chart) :
In our first check we looked at the G1, G2, G3 & G4 levels, which we calculated by reference to the extreme highs and lows. Gann also divided the extreme high and zero and the extreme high and the extreme low by eighths and thirds. The results are then used as levels of lesser importance, in support of the main levels of the 1st Check.
The 3/ 4 level, however, should be considered as being of equal value to the G4 level. These remaining calculations should be looked at to see if they support the previous checks, then noted but not placed on the chart.
Example : where the extreme high is 100 and the extreme low is 20. EXTREME HIGH 100 7/8 3/4 5/8 1/2 (G1) 3/8 1/4 (G3) 1/8
87.5 75 * 62.5 50 **** 37.5 25 ** 12.5 0
EXTREME HIGH 7/8 3/4 5/8 1/2 (G2) 3/8 1/4 (G4) 1/8 EXTREME LOW
Note - * signifies degree of strength
24
100 90 80 * 70 60 *** 50 40 * 30 20
CASESTUDYNO4 JapanNikkeiIndex-THELESSERLEVELS The levels found by using Checks 2 & 3 (Percentages and 50 % Retracements) should then be inspected to see if the lesser levels provide support but make a mental note only of their presence. Do not leave them on the chart.
CHART 17
JAPAN NIKKEI SPREAD (X 10)
G1
G2 G4
G3
Fri 1 Sep 1989 to Fri 22 Oct 1993
25
Monthly
E: THE 5TH CHECK - PAST TOPS AND BOTTOMS (Note only - Do not place them on the chart)
Look to see whether there have been significant tops and bottoms in the past to support the levels that have emerged from Checks 1 to 3.
Buy when prices advance above these old tops and sell when prices fall below these levels. An important level at which to buy is on a break into new high ground, while the significant level at which to sell is when the price falls below an historic low.
26
CASESTUDYNO5 JapanNikkeiIndex-PASTTOPSANDBOTTOMS Make a note of the previous important tops and bottoms which support your calculated levels as per Checks 1,2,3 & 4. If there is no support from past highs and lows treat your progress to date with some suspicion. It would be prudent to start again as your decision levels should normally reflect past tops and bottoms. CHART 18
JAPAN NIKKEI SPREAD (X 10) Oct '87 top supported the lows of Sept '88 & April '90 & the March '91 top
October 1986 low supported 1992 lows November 1987 lows supported 1990 and 1992 lows Mon 1 Aug 1986 to Thu 21 Oct 1993
27
Monthly
F: THE 6TH CHECK - TRIPLE TOPS & 4TH ATTEMPTS (Note only - Do not place them on the chart)
Special note should be taken of any triple bottom or top formations which develop at support or resistance levels. A TRIPLE BOTTOM will normally advance faster and further than the previous two moves. Should the move not rise rapidly from the triple early in its rise but climb slowly, the advance will be usually reversed at the 50% retracement of the previous fall and then attack the lows again. This 4th attempt usually goes through. A TRIPLE TOP has the reverse effect, with the fall faster and heavier than the previous two falls. Again, if the move from the triple top is slow and sluggish, expect a fourth attempt at the triple top level with a break into new high ground.
Most large moves emanate from triple tops and bottoms.
Weekly High/Low 1
2
3
AN EXAMPLE OF A TRIPLE TOP
28
G: THE 7TH CHECK - NATURAL NUMBER LEVELS (Note only - Do not place them on the chart)
This is a further check to establish that an important decision level has indeed been located and to establish whether the price is on a natural Gann number. These numbers, multiples and divisions of 360, are calculated as follows :
360 315 ( 7/ 8)
45 ( 1/ 8)
270 ( 3/ 4)
90 ( 1/ 4)
240 ( 2/ 3)
120 ( 1/ 3) 135 ( 3/ 8)
225 ( 5/ 8) 180 ( 1/ 2) Some interesting features are:
If a half or full circle (180/360/540/720 etc) is broken on the upside, the rally will usually rise at least to the fifth circle or half circle (216/432/648/864). If a half or full circle (180/360/540/720 etc) is broken on the downside, the fall can be expected to drop to at least fifth under the circle or half circle (144/288/432/572 - these are also multiples of 144 i.e. the square of 12). The full circles are always important levels to look for a change in trend. You will also find that many moves coincide with these natural numbers. For instance, on a rise of 360 or its multiples, look for a change in trend if the level falls in line with the other checks. CHART 19 shows that the Nikkei has been dominated by trend changes on full, half & quarter circle moves. As the price lowers, smaller divisions of 360 will become more important. This could be observed when the quarter divisions became dominant during 1992. The reason is that percentage moves increase at lower levels, therefore, on occasions, terminating on the quarter divisions. On a fall to very low numbers, eighths & sixteenths will become evident.
29
CASESTUDYNO6 JapanNikkeiIndex-THENATURALLEVELS The Nikkei index has stuck remarkably rigidly to movements associated with full and partial circles as follows : CHART 19
JAPAN NIKKEI SPREAD (X 10)
3 1 2 4
5
6 7 8
Fri 1 Sept 1989 to Thu 21 Oct 1993 12-
9
10
The January '90 to April '90 move equals a FALL of 3 circles (1080 points). The April ’90 to June ’90 move equals a RISE of 11/2 circles (540 points).
3-
The July ’90 to October ’90 move equals a FALL of 4 circles (1260 points).
4-
The October ’90 to March ’91 move equals a RISE of 1 circle (360 points). The March ’91 to August ’91 move equals a FALL of 1 1/ 2 circles (540 points). The August ’91 to October ’91 move equals a RISE of 1 circle (360). The October ’91 to August ’92 move equals a FALL of 3 circles (1080).
567-
89-
10-
Monthly
The January ’92 to April ’92 move equals a FALL of 1 circle (360). The May ’92 to August ’92 move equals a FALL of 11/4 circles (450). The August ’92 to September ’92 move equals a RISE of 11/4 circles (450), etc.
30
2: TRIGGERING THE SIGNAL Now that the decision levels have been established, only patience is required as you wait for your investment to approach the upper or lower decision level. To trigger the buy, sell or short signal it is necessary to refer to Gann’s trend indicator line.
31
A: THE TREND INDICATOR LINE The Trend Indicator Line, commonly referred to as TIL, is obtained by referring to the daily chart of highs and lows. Provided the chart shows higher tops and bottoms, the trend indicator line moves up each day to the highest price, continuing to do so as long as the market makes higher tops and bottoms.
Ö
As soon as the chart shows a lower bottom, move the trend indicator line to the lower bottom.
Ö
Continue to move it down as long as lower bottoms are made.
Ö
Move the line back up to the top when a higher bottom and higher top is recorded.
A new high and low on the same day IF a higher top is formed in the early part of the day but the price then goes down and makes a bottom lower than that formed on the previous day,
Ö
move the trend indicator line to the higher top and then move it down to the bottom of the day.
CONVERSELY, IF a lower bottom is formed in the early part of the day but the price later goes up to a new high, then
Ö
move the line to the low for the day and then to the top for that day.
32
A ‘within day’ A WITHIN DAY occurs when a share makes a higher or identical low and a lower or identical high to those of the previous day. In other words, the spread for the day has remained within the previous day's parameters. IN THESE CIRCUMSTANCES,
Ö
keep the trend line at the low for the day if the previous moves show the trend line on the lows.
SIMILARLY,
Ö
keep the trend line at the high for the day if the previous moves show the line to have been on the highs.
THE APPLICATION OF A TREND INDICATOR LINE If the trend indicator line is forming higher tops and bottoms, the short term trend is up. If the trend indicator line is forming lower bottoms, only the short term trend is down. A BOTTOM on the trend indicator line is when the TIL has gone from a high price on a price spread to a low price and then back up to a high again. (There may be more than 3 days making up this formation.) A TOP on the trend indicator line is when the TIL has gone from a low price on a price spread to a high, then back down to a low again. (There may be more that 3 days making up this formation.)
Top
Top Top
Bottom
Bottom
33
B: THE TRIGGER TO BUY When the price rises or falls to decision bands, watch the trend indicator line at these levels and, when the trend is established at the decision area, go with the trend. The decision levels can be predetermined well in advance of any action you might wish to take. This grants you sufficient time to prepare yourself emotionally and financially to take action at the appropriate time. It also means that arrangements with your broker, banker or financial advisor need not be rushed. You will find with experience that the majority of major turning points in price will start from the selected levels. However, they are not infallible. You must at all times protect yourself with an exit or stop loss level. (SEE SECTION 4 - LIMITING LOSSES). Ö
All investors, including the greatest of traders, experience losses on a fairly regular basis.
Ö
Keep losses small and you will survive even after a losing spell.
Ö
Allow your losses to grow and you will almost certainly fail.
Your chart should show : i) The decision level below the current price and/or ii) the decision level above the current price. A fall to a decision level would be a level at which to consider a purchase. However, some of the best upward moves will emanate from a break upwards over the decision level shown above the current price. You should not be deterred by the view that the price is too high. The price is never too high to buy provided that the trend is ‘up’. It will probably be helpful in these circumstances to remember the old saying:-
‘Bull [rising] markets climb a wall of worry’.
34
I)
THE ACTION ON PRICES
rising
TO A DECISION LEVEL
When the current price reaches the upper decision level,
Ö
a purchase could be considered on strength higher than the decision level band.
To verify strength you may find the following hints useful in deciding the day of your purchase once the price has risen to a decision level. When you see a higher trend line bottom form on or over the top level of the band of resistance this should alert you to strength above the level of resistance, which implies higher prices. BUY SIGNAL Highest level of the band
DECISION LEVEL
This is a higher trend line bottom than the previous one
Lowest level of the band
Buy on strength over this high.
Notes A higher trend line bottom means one which is higher than the previous bottom. 'Band' means the area created by close percentage calculations.
When the chart shows that a higher trend line bottom has formed on or over the previous bottom, higher prices are indicated. In this event, after the first hour of trading ask your broker for the current price, & EITHER :
Ö
If the price is above the high of the previous day, then higher prices are indicated and a buy will be triggered; or
Ö
If the price is below the previous day's high, do not buy; or
Ö
If the chart continues to show a higher trend line bottom, (i)
Give the Broker instructions to buy over the high of the previous day
(ii)
Keep a check on the prices during the day and only buy if you see the price strengthen above the high of the previous day.
or
REPEAT this process for every day that the higher trend line bottom persists, and has not produced a price lower than the previous day's low.
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I I ) THE ACTION ON PRICES
falling
TO A DECISION LEVEL.
After the price has fallen to the decision area,
Ö
wait for a higher trend line bottom to form on or over the highest decision level before considering a purchase.
To verify strength follow the procedure is as described above for buying but this time the signal will be provided by a fall to the level of support followed by a higher trend line bottom forming. Buy on strength over this high
BUY SIGNAL
Highest level of the band Lowest level of the band
This is a higher trend line bottom than the previous one.
DECISION LEVEL
Notes A higher trend line bottom means one which is higher than the previous bottom. 'Band' means the area created by close percentage calculations.
When the chart shows that a higher trend line bottom has formed on or over the previous bottom, higher prices are indicated. In this event, after the first hour of trading ask your broker for the current price, & EITHER :
Ö
If the price is above the high of the previous day, then higher prices are indicated and a buy will be triggered; or
Ö
If the price is below the previous day's high, do not buy; or
Ö
If the chart continues to show a higher trend line bottom, (i)
Give the Broker instructions to buy over the high of the previous day
(ii)
Keep a check on the prices during the day and only buy if you see the price strengthen above the high of the previous day.
or
REPEAT this process for every day that the higher trend line bottom persists, and has not produced a price lower than the previous day's low.
36
C: THE TRIGGER TO SHORT You should be just as willing to sell short as you are to buy. Your chart should show : i) The decision level below the current price and/or ii)the decision level above the current price.
37
I)
THE ACTION ON PRICES
rising
TO A DECISION LEVEL
If the price rises to the upper decision area,
Ö
wait for a lower trend line top to form on or under the lowest level of the decision band before considering a short.
To verify weakness, you may find the following hints useful in deciding the day of your short when the price has risen to a decision level. When you see a lower trend line top form on or under the band of resistance this should alert you to weakness below the level, implying lower prices. Highest level of the band Lowest level of the band
This is a lower trend line top than the previous one. DECISION LEVEL
Short on weakness SHORT SIGNAL Note A lower trend line top means one which is lower than the previous top.
When the chart shows that a lower trend line top has formed on or under the lowest level of the decision level band, this implies that lower prices are indicated. In this event, after the first hour of trading ask your broker for the price, & EITHER :
Ö
If the price is below the lowest price of the previous day, then lower prices are indicated and a short should be considered; or
Ö
If the price is above the low of the previous day, do not short; or
Ö
If the chart continues to show a lower trend line top (i)
Give the broker instructions to short under the low of the previous day
(ii)
Keep a personal check on the prices during the day and short if the price weakens below the low of the previous day.
or
REPEAT this process for every day that the lower trend line top persists, and has not produced a price higher than the high of the previous day.
38
I I ) THE ACTION ON PRICES
falling
TO A DECISION LEVEL
When the current price reaches the lower level,
Ö
a short could be considered on weakness below the bottom level of the decision level band.
To verify weakness after a fall to a decision level, you may find the following hints useful in deciding the day of your short. When you see a lower trend line top form on or under the lower level of the band this should alert you to weakness below the level of support, which implies lower prices. SHORT SIGNAL
This is a lower trend line top than the previous one.
Highest level of the band Lowest level of the band
DECISION LEVEL
Short on weakness
Note A lower trend line top means one which is lower than the previous top.
When the chart shows that a lower trend line top has formed on or under the lowest level of the decision band, this indicates lower prices. In this event, after the first hour of trading, ask your broker for the price, & EITHER :
Ö
If the price is below the bottom price of the previous day, then lower prices are indicated and a ‘short’ should be considered; or
Ö
If the price is above the previous day's low, do not 'short'; or
Ö
If the chart continues to show a lower trend line top, (i)
Give the broker instructions to short under the low of the previous day
(ii)
Keep a check on the prices during the day and short if you see the price weaken under the low of the previous day.
or
REPEAT this process for every day that the lower trend line top persists, and has not produced a price higher than the previous day's high.
39
40
3: TAKING PROFITS It is generally acknowledged that most investors have great difficulty in determining the time to take profits. However, if strict rules are followed, taking profits can become one of the easier aspects of successful trading.
41
A: TAKING PROFITS AFTER BUYING Your daily chart should show the trend line. This trend line will enable you to see clearly when the short term trend has turned down. The trend turns down when the last trend line bottom is broken by one percentage point. A TREND LINE BOTTOM occurs when the trend line which joins up the daily prices goes from the top of a daily spread to the bottom of a daily spread, and then to the top of a daily spread. (There may be 2, 3 or more days making up this formation.)
TO PLACE A ‘STOP LOSS’ subtract 1% from the lowest point of the last trend line bottom. Daily High/Low
Daily High/Low TREND LINE STOP LOSS after buying
24.1 is the price of the last trend line bottom. The Stop Loss is 23.8 (ie. 1% below). THEN, if the chart shows that the spread for the previous day was on or below the stop loss level,
Ö
note the lowest price of the spread for that day.
After the first hour of trading, ask your broker for the current price, & EITHER :
Ö
If the price is below the low of the previous day, then lower prices are indicated and profits should be taken; or
Ö
If the price is above the low of the previous day and the stop loss, do not sell; or
Ö
If the price is still on the stop loss but above the low of the previous day, (i)
Give your broker instructions to sell under the low of the previous day
(ii)
Keep a check on the prices during the day and close the position if the price weakens below the low of the previous day.
or
REPEAT this process for every day that the last price on the chart is on the stop loss.
42
I)
TAKING PROFITS AFTER A FAST RISE
If the price is rising FAST to a decision level then consider the use of the ‘Signal Day’ or ‘Day After’ Rule when the price hits the decision level area. These rules are formulated to take into account that a sharp rise is often followed by a sharp fall. The reason for applying them is that prices tend to fall far faster than they rise. This could result in your profits being quickly eroded before the trend line triggers the sell signal. THE ‘SIGNAL DAY' (SELL) On the day that the price hits the decision level area, telephone your broker an hour before the close of the market to ascertain the highest and lowest traded prices for the day so far. From this information calculate the mean (middle or halfway) price. If the price at the time of enquiry is below this level, this suggests lower prices and profits should be taken. THE ‘DAY AFTER’ RULE (SELL) If the ‘Signal Day’ was not triggered, then the ‘Day After Rule’ should be operated. After the first hour of trading (on the day after the ‘Signal Day’), ask your broker for the last traded price. If this is below the closing price of the previous day, then this indicates lower prices and profits should be taken. Highest level of the band Lowest level of the band
DECISION LEVEL
100 95 90
Take profits on Signal Day (below the mean) or Day After Rule (below the Signal Day close) SIGNAL DAY & DAY AFTER RULE (SELL) Notes It is only when you use the ‘Signal Day’ or ‘Day After’ Rule that we would recommend that you know about the price movements during the same day. Normally, you should make your decisions from your charts the FOLLOWING day. This will help you to avoid making emotional decisions and will save you from unnecessary traumas caused by wide daily fluctuations.
43
B: TAKING PROFITS AFTER SHORTING When looking to close a ‘short’ position, your daily charts should show the trend line. The trend line on the DAILY chart will enable you to see clearly when the short term trend has turned bullish. This occurs when the price breaks above the last trend line top by 1 percentage point or more on the chart. A TREND LINE TOP occurs when the line which joins up the daily prices goes from the bottom of a daily spread to the top of a later daily spread, and then down to the bottom of a later daily spread. (There may be more than three days making up this formation.) TO PLACE A ‘STOP LOSS’, add 1% to the highest point of the the last trend indicator line top on your chart. TREND LINE STOP LOSS after shor ting Place stop loss 1% above the last trend line bottom.
THEN, if the chart shows that the spread for the previous day was on or above the stop loss level,
Ö
note the highest price of the spread for that day.
After the first hour of trading ask your broker for the current price, & EITHER :
Ö
If the price is above the high of the previous day, then higher prices are indicated and profits should be taken; or
Ö
If the price is below the high of the previous day and the stop loss, do not sell; or
Ö
If the price is still on the stop loss but below the high of the previous day, (i)
Give your broker instructions to cover above the high of the previous day
(ii)
Keep a personal check on the prices during the day and close the position if the price strengthens above the high of the previous day.
or
REPEAT this process for every day that the last price on the chart is on the stop loss.
44
I)
TAKING PROFITS AFTER A FAST FALL
If the price is falling FAST to a decision level then consider the use of a ‘Signal Day’ or ‘Day After’ Rule when the price hits the decision level area. These rules are formulated to take into account that a sharp fall is often followed by a sharp rise. This could result in your profits being quickly eroded before the trend line triggers the signal to close your position. THE ‘SIGNAL DAY’ SHORT POSITION CLOSE On the day that the price hits the decision level area, telephone your broker an hour before the close of the market to ascertain the highest and lowest traded prices for the day so far. From this information calculate the mean (middle or halfway) price. If the last traded price is above this level, this indicates higher levels and profits should be taken.
THE ‘DAY AFTER’ RULE SHORT POSITION CLOSE If the signal day was not triggered, then the ‘Day After’ Rule should be used. After the first hour of trading on the day after the Signal Day ask your broker for the last traded price. If this is above the closing price of the previous day, then this indicates higher prices and profits should be taken. SIGNAL DAY & DAY AFTER RULE CLOSE OF 'SHORT'
Take profits on Signal Day
Highest level of the band Lowest level of the band
100
or Day After Rule
95 DECISION LEVEL
Notes It is only when you use the ‘Signal Day’ or ‘Day After’ Rule that we would recommend that you know about the price movements during the same day. Normally, you should make your decisions from your charts the following day. This will help you to avoid making emotional decisions and will save you from unnecessary traumas caused by wide daily fluctuations.
45
46
4: LIMITING LOSSES
47
A: CUTTING LOSSES AFTER BUYING Losses must be strictly limited and quantified before buying. Once a limit has been set it must NEVER be overruled or adjusted. This is perhaps the most important of all rules as failure to follow the rule WILL result in large losses.
Ö
Place the trend line on the daily chart. When you buy, your stop loss should be placed 1% below the lowest point of the last trend line bottom.
CUTTING LOSSES WHEN BUYING
Buy signalled
Highest level of the band Place stop loss 1% below the low
Lowest level of the band
THEN, if the chart shows that the spread for yesterday was on or below the stop loss,
Ö
note the lowest price of the spread for that day.
After the first hour of trading ask your broker for the price, & EITHER :
Ö
If the price is below the low of yesterday, then lower prices are indicated and losses should be taken; or
Ö Ö
If the price is above the low of the previous day & the stop loss, do not sell; or If the price is still on the stop loss but above the low of the previous day, i)
Give your broker instructions to sell (close the position) under the low of the previous day
ii)
Keep a check on the prices during the day and close the position if the price weakens below the low of the previous day.
or
REPEAT this process for every day that the price is on the stop loss.
48
B: CUTTING LOSSES AFTER SHORTING Losses must be strictly limited and quantified before ‘shorting’. Once a limit has been set it must NEVER be overruled or adjusted. This is especially true when ‘shorting’, as your losses can be unlimited.
Ö
Place the trend line on the daily chart. When you ‘short’, your ‘stop loss’ should be placed 1% above the last high of the ’trend line top’.
Highest level of the band Lowest level of the band
Place stop loss 1% above the top
Short signalled CUTTING LOSSES WHEN SHORTING
THEN, if the chart shows that the spread for the day was on the stop loss level,
Ö
note the highest price of the spread for that day.
After the first hour of trading ask the broker for the price, & EITHER :
Ö
If the price is above the high of the previous day, then higher prices are indicated and losses should be taken; or
Ö
If the price is below the high of the previous day and the stop loss, do not sell; or
Ö
If the price is still on the stop loss but below the high of the previous day, i)
Give your broker instructions to close the position above the high of the previous day
ii)
Keep a check on the prices during the day and close the position if the price strengthens above the high of the previous day.
or
REPEAT this process for every day that the last price on the chart is on the stop loss.
49
THECASESTUDY-THEJAPANESENIKKEIINDEX THEFINALPICTURE CHARTS 20 AND 21 bring the various features discussed in the previous case studies together to provide an analysis of the September 1992 decision level. The features which created the decision level at 1900 were the 'G1' level; a50%retracement; the 33.33% level from the 1992 low; 25%downfromtheNov1991high; a rise of 11/4 circles; the low of 1990; a double top.
The 2 charts show the Index before and after the price hit the decision level. The final chart is a daily chart showing the exact day to sell or go 'short' of the market by using the trend line rules.
50
CHART 20
JAPAN NIKKEI (X 10)
The G1 Level
33.33% The 1990 Low
-25%
r.5
Mon 30 Oct 1989 to Week beginning 24 Aug 1992
Weekly
CHART 21
JAPAN NIKKEI ( X 10)
The G1 level -25%
The 1990 Low
33.33%
r.5
Mon 30 Sept 91 to Week beginning 5 Oct 92
Weekly
CHART 22
JAPAN NIKKEI (X 10)
Sell triggered on lower trend line top if the signal day was not used at 1900.
Fri 24 July 1992 to Wed 6 Jan 1993
51
Daily
IN CONCLUSION
I
n this short introduction to the works of W. D. Gann I have attempted to do no more than take the first step to enable you to appreciate the methods of the greatest of Wall Street traders. It has not been possible to cover all the discoveries made during Gann's lifetime. My challenge has been to present a clear and explicit method to isolate, in advance, future price turning points. The study of the TIME factor in anticipating major moves is one of the more perplexing of Gann's discoveries, as is his method of predicting future events. In my view, such studies should come after that of price levels. Other important future studies are those on Gann's money management and trading rules whilst investors' psychology is an area which has been receiving my special attention of late. You now have the basic rules with which to calculate where you can expect changes in trend. It will be time to take the next step when these rules have been fully tested, proven and then appreciated. I leave you with the comments of W. D. Gann.
"IwanttoimpressuponyoustronglythatifyouexpecttomakesuccessintheStock Marketyoumustputinplentyoftimestudying,becausethemoretimeyouputin, themoreknowledgeyougain,themoreprofitsyouwilltakeoutlater.Ihavegiventhe ruleswhichwillwork;youmustdoyourpart:youmustlearntherules,actonthem attherighttimeandputthemintoexecution." Good hunting.
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