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W.D. Gann Trading Methods - Genius Trader or Overrated Guru

W.D. Gann is one of the most famous traders of all time, and has a huge devoted following - however the fact is, Gann never made the huge profits many of his disciples claim.

He did not have a success rate of 90%, as is often claimed - the logic his methods are based upon are unsound, and his predictive methods don�t predict - they leave everything to subjective opinion!

Let�s examine his theories of investment in more detail and see.

Let�s look at some common myths about how great a trader Gann actually was:

Many sources quote Gann�s trading profits at $50 million dollars, however this is not true.

An interview that Alexander Elder had with his son tells the truth.

Firstly, his son confirmed that when his father died in the 1950s his estate was valued at just $100,000 - and that included his house.

Secondly, his son confirmed that Gann was unable to make enough money from trading, and therefore supplemented his income by writing and selling courses.

W.D. Gann�s Predictions

Many sources quote he had a success rate in all his trades of over 90% - again not true. We can easily deduce this from the value of his estate.

If he could make money trading and had a 90% success rate, he would have made hundreds of millions in his trading career - and he clearly did not - that�s why he had to sell books and courses.

The only evidence of a 90% success rate came from a small number of trades - and was not representative of them all.

Gann�s Methods are Predictive

Gann came to the conclusion that all natural phenomena are cyclical - including financial markets. This is true, but this is an obvious statement - we all know we�re going to die but when exactly?

A predictive theory is not a predictive theory if it can�t predict.

If Gann�s theory really is predictive, then there would be no market - as we would all know the price in advance!

Gann�s theory is subjective - and he really had no way of predicting the future with accuracy. It�s all subjective analysis and this is NOT a predictive theory.

Gann�s Logic

The basis of Gann�s theory is the principle that price and time must balance.

His methods are based on the squaring of price with time - this occurs when a unit of price equals a unit of time.

Gann for example would take a prominent high in the market, convert that dollar unit into a specified period of time and project it forward. When that time is reached, price and time are squared - and a market turn is due.

What? - How can one unit of price equal one unit of time? If you think about and answer this question for yourself, you will see how absurd the connection is.

This isn�t the only inconsistency used in his analysis - we also have the legendary Fibonacci numbers which are supposed to work with stunning accuracy - but they don�t, and neither do all sorts of astrology and geometry, that appeals to the far out investment crowd.

As we have seen, Gann was a trader who had modest success, and claimed to have discovered a predictive theory - which predicts nothing with accuracy.

Finally, we have so many subjective indicators cobbled together, that the theory can prove anything in hindsight, but if you want a tool to trade the markets look elsewhere.

For those of you still not convinced - I recently saw on the Internet, Gann�s trading methods selling for under $1,000!

Sounds like a bargain to get trades with 90% accuracy - I wonder how many serious money managers have it on their bookshelf.

Enough said.

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Thoughts On Forex

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The Division of Trading and Markets (now Division of Clearing and Intermediary Oversight, or DCIO) issued an advisory in 2002 concerning foreign currency trading by retail customers (PDF). The advisory affirms that off-exchange trading of foreign currency futures and options contracts with retail customers by a counterparty that is not a regulated financial entity as set forth in the CFMA is unlawful. The advisory further states that, if there is a lawful counterparty to the transaction, such as a person registered as a futures commission merchant, the persons acting as intermediaries to such a transaction, that is, in the manner of an introducing broker, commodity trading advisor or commodity pool operator, would not need to register under the CEA if that is their only involvement in futures or option transactions.

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The gross domestic product,or GDP,is another economic indicator used when looking at the foreign exchange market. The GDP is considered the widest and broadest measure of the economy in a country. The gross domestic product represents the total market value of all goods and services that are normally produced within any given country. This is usually measured in the time frame of a year, and not in weeks or months. Using a larger time period gives good statistics on the products and services that are produced in the country. This indicator is not used alone when forecasting the Forex. The GDP is considered a lagging indicator, meaning that is a measurable factor that changes after the economy has already began to follow a certain trend.

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Yes, but as a position trader I never use tight stops. Same goes for trailing stops. All very far away from the market not to be taken out by meaningless market noises. Initial stop is always 1% of my total equity, and never commit the whole position at a go but always scale in and scale out.
You can avoid your problem in most cases by leaving the market always by trailing stops, i.e., do not set the profit target. So, any winning trade must be held as long as market does not tell you to leave by hitting your trailing stops. When you enter the market by market signals and leave by stops or trailing stops, it solves the most difficult part of decision making process rather easier for traders.

One of the silly rules of thumb in USD/JPY trading is it rarely moves 700-800 pips in a row without 200 pips or more correction in the middle and it almost always retraces back to 350 pips advance point from the start of its 700-800 pips move. All because of liquidity problem in Yen market.
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We know Forex trading is direct access trading of currencies. In the past, foreign exchange trading was limited to large banks and institutional traders but recent advancements in technology have allowed small traders to take advantage of the many benefits of Forex trading using online trading platforms to trade. Virtually Forex trading is done 24 hours day and almost 5 � days of a week. In the recent times, online trading has revolutionized the currency markets by making it accessible to the small and medium sized investor.

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Many new Forex market traders have misconceptions about the entire system. They see people making money trading with the Forex market and automatically assume they can easily do the same. What they tend to forget it that there is strategy and research done in order to make successful trades and profits from trading. If you are new to the Forex market system, don't get caught up in popular investment myths. Be sure that you know exactly what to expect and be realistic when trading.

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Corrections may take days or longer to complete. Good quality info is everything in this game. Bottom picking in the Usd/Jpy is the Mother of all risky trades. We learn how to trade till we stop trading and we learn from each other everyday. That is the beauty of trading and life in general.

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