GANN COMMODITIES COURSE EXCERPT:
SPECULATION, A PROFITABLE PROFESSION - W. D. Gann
Below are some interesting excerptions written by the famous W. D. Gann almost a half century ago and his sound trading advice and principles have basically timeless value, even after 50-years! We offer two different Gann Trading Courses, a large one written by Mr. Gann and a smaller one written by Dave. Click-here for more information on Gann Trading Courses
In 1911, after I made a great success trading in stocks and commodities,
there was a public demand for a traders book with my rules for trading
successfully. This demand was answered by my first small book, Speculation:
A Profession. As the years went by, I learned more about the markets
and realized other traders needed the help I could give them and
I wrote more books to help others who were also trying to help themselves.
It is now May 1954, I am nearing my 76th birthday and am writing this new trading course of instructions, not to make money (for I have more income than I can spend) but realizing the demand and the need for more knowledge about futures trading by so many people. I now give the benefit of my 52-years experience to help those who need it. The price of my trading course is made reasonable in order for men and women with a small amount of money to be able to get a market education, and start with small capital and make a success, provided they follow the rules after they learn them.
My experience has proved that it is more profitable to trade in commodities than stocks, and you can make larger profits on the same amount of capital with a smaller risk. When you trade in commodities, you are trading in the necessities of life. Commodity prices obey the law of supply and demand and follow a seasonal trend most of the time.
When you learn the rules and follow them, you eliminate trading on Hope, Fear, and Guesswork -- which is nothing but gamble, and you cannot afford to risk your money gambling. You must follow mathematical rules, which I have proved to be a realistic guide in trading. You must prove to yourself that the rules have always worked in the past and they will work in the future. When you have the proof, follow the rules and you will make speculation a profitable profession.
How To Make Speculation A Profitable Profession
Speculation or investment is the best business in the world if you
make a business of it. But in order to make a success of it you
must study and be prepared and not guess, follow inside information,
or depend on hope or fear. If you do, you will fail. Your success
depends on knowing the right kind of rules and following them.
Fundamental Rules
Keep this well in mind. For commodities to show up trend and continue
to advance, they must make higher bottoms and higher tops. When
the trend is down, they must make lower tops and lower bottoms and
continue on down to lower levels. But remember prices can move in
a narrow trading range for weeks or months or even years and not
make a new high or a new low. But after a long period of time when
commodities break into new lows they indicate lower prices and after
a long period of time when they advance above old highs or old tops
they are in a stronger position and indicate higher prices. This
is the reason why you must have a chart a long ways back in order
to see just what position a commodity is in and at what stage it
is between extreme high and extreme low.
The Kind Of Charts To Keep Up
Remember the old Chinese proverb, "One good picture is worth
10,000 words." You should make up charts and study the picture
of a commodity before you make a trade. You should have a weekly
high, low chart, a monthly high and low chart and a yearly high
and low chart. A yearly high and low chart should run back 5, 10
or 20 years if you can get records that far. Monthly high and low
chart should go back for at least 10 years and the weekly high and
low chart should go back for 2 or 3 years. When commodities are
very active you should have a daily high and low chart. This need
not go back more than a few months. Start the daily chart after
the commodity breaks into great activity.
Follow The Main Trend
You will always make money by following the trend of commodities
up or down. Remember that commodities are never too high to buy
as long as the trend is up and they are never too low to sell as
long as the trend is down. Never sell short just because the commodity
is high or because you think it is too high. Never sell out and
take profits just because the price is high. Buy and sell according
to definite rules and not on hope, fear or guesswork. Never buy
a commodity just because the commodity is low. There is usually
a good reason why it is low and it can go lower.
Rules For Buying And Selling
The first thing to remember before you start to apply any rules
is that you must always use a STOP-LOSS order to protect your capital.
When making a trade remember that you can be wrong or that the market
may change its trend and the STOP-LOSS order will protect you and
limit your loss. A small loss or several small losses can easily
be made back with one large profit, but when you let large losses
run against you it is hard to make them back.
Prove All Things And Hold Fast To That Which
Is Good
The Bible tells us this and it is well worth remembering. Many people
believe that its wrong to buy at new high levels or to sell at new
low levels but it is most profitable and you must prove this to
yourself. Because when you do buy at new high levels or sell at
new low levels you are going with the trend of the market and your
chances for making profits are much better than guesswork or buying
or selling on hope or fear.
Prolonged Advances
After commodities have had a prolonged advance and wind up with
a fast, active, runaway market, in most cases they come down very
quickly and much faster or in a shorter period of time than when
they go up. This is why you must keep up some daily charts at the
end of a fast move and keep up the weekly charts to determine the
first change in trend and be able to go with it.
Sharp Decline In A Short Period Of Time
This usually follows a rapid advance and the first sharp decline,
which may last from one month to as much as seven weeks, usually
corrects an overbought position and leaves the market in position
for a secondary advance.
When you are able to catch the extremes at the end of any great time cycle, you can make a large amount of money in one year's time trading in fast, active markets. In extreme low or extreme high the opportunities are great for making money, providing you select the commodity that will lead.
Large Profits On Small Risks
You can make large profits on small risks provided you use a STOP-LOSS
order, apply all the rules and wait for a definite indication of
a change in trend up or down before you make a trade.
Fixed Ideas And Fixed Prices
Never get a fixed idea of just how high any price is going to go
or just how low they are going. Never buy or sell on a price that
you fix because you may be trading on hope or fear and not following
the trend of the market and applying rules, which will determine
when the trend is changing.
How To Protect Profits
After you have accumulated profits, it is just as important to protect
them with STOP-LOSS orders, as it is to protect your original capital
because once you have made profits it is your capital and STOP-LOSS
orders must be used to protect it. The most dangerous thing that
you can do is to let a trade start going against you and lose back
your profits. A STOP-LOSS order will protect the profits and you
can always get in again when you are out, with capital. Remember
when you are out of the market the only thing you can lose or miss
is an opportunity.
My 52-years experience has taught me that thousands of people have gone broke trying to hold on until the trend turned. Avoid getting out of the market too soon after move starts when you have a small profit. This can be a great mistake. Get out of the market quickly as soon as you see that you have a mistake. If you place a STOP-LOSS order, this will put you out of the market automatically.
Too Late Or Too Soon
You can lose money or miss opportunity by getting into the market
too soon or getting out too late. That is not waiting until a definite
change in trend is indicated, or failing to act in time when you
see a definite change in trend. Wait until you have a well-defined
indication that the trend has changed, then buy or sell. Follow
all the rules in my book, How to Make Profits on Commodities. There
are many rules in my book, How to Make Profits Trading in Commodities
which are not in this course of instruction and by using all the
rules you will make a greater success.
Hope And Fear
I repeat this because I have seen so many people go broke trading
on hope and fear. You will never succeed buying or selling when
you hope the market is going up or down. You will never succeed
by making a trade because you fear the market is going up or down.
Hope will ruin you, because its nothing more than wishful thinking
and provides no basis for action. Fear will often save you if you
act quickly when you see that you are wrong. "The fear of the
market is the beginning of wisdom." Knowledge, which you can
only obtain by deep study, will help you to make a success. The
more you study past price records, the surer you are capable of
detecting the future trend.
Make The Market Move Your Way
You must learn to realize that you cannot make the market go your
way, you must go the market's way and must follow the trend. Many
successful businessmen who are accustomed to giving orders to others
and have them carried out will often when they get into the market,
especially for the first time, expect the market to follow their
orders or move their way. They must learn that they cannot make
the market trend go their way. They must follow the market trend
as is indicated by fixed rules and protect their capital and profits
by the use of STOP-LOSS orders. There is no harm in making a few
mistakes and a few small losses because small losses are the expense
of a successful speculator. If you intend to make speculation a
Profitable Profession, you must learn all the rules and apply all
of them to determine the trend Professional men, such as lawyers,
doctors, accountants and engineers, spend years in training and
a large amount of money to learn how to succeed in their chosen
profession. You must spend time and money to learn the profession
and become a successful speculator or investor.
How To Make The Most Money In The Shortest
Period Of Time
Most people want to get rich too quick; that is why they lose their
money. They start speculating or investing without first preparing
themselves or getting a commodity education. They do not have the
knowledge to start with and the result is they make serious mistakes,
which cost them money. When you do have knowledge and are prepared,
you can make the most money in the shortest period of time. You
must learn to follow the rules which I have laid down and proved
to you by examples that you can make a large amount of money in
a short period of time when the market is at the right stage for
fast advances and fast declines occur.
Do not try to lead the market or make the market. Follow the trend which is made by big men who make big money and you will make money. Buy when the big market makers are ready for prices to move up fast, sell when they are ready for prices to move down fast and you will make large profits in a short period of time. Trade only when the market shows a definite trend and trade according to definite rules.
Study the chart on Soybeans for 1953 and 1954 and the examples, which I have given and you cannot fail to make profits, provided you use STOP-LOSS orders as advised.
From March 8, 1954 to April 27, 1954, May Soy Beans advanced from 343 to 422, a gain of 78 per bushel in 50-calendar days and 35 actual market days. This would give a profit of $7,800 on 10,000 bushels and you were buying after the price was up $1.05 per bushel from the low in August 1953, which proves that you can buy at new highs in the last stage of a bull market and make large profits in a short period of time. This is without guessing but following rules and buying when the big people buy and of course you are with the trend made by the big traders.
Refer to the trading examples on May Rye and you will see how large profits could be made in a short period of time by selling short after prices were down to comparatively low levels against the extreme high levels.
Why People Do Not Make Money Buying And Selling
Commodities
I have stated in my books many times the market does not beat you,
it is your own human weakness that causes you to defeat yourself.
The average man or woman nearly always wants to buy low and sell
high. The farmer always wants to sell at high prices whatever he
produces but he wants to buy what he needs at low prices. The laboring
man wants high wages all the time but wants low prices for what
he buys to eat and wear. This is a violation of a fundamental economic
law and it just will not work. To make a success in speculation,
you cannot expect to buy low and sell high.
You will make money when you do exactly the opposite of what the average man or woman wants to do or tries to do and makes a failure and loses as a result of what they are trying to do. You will make profits when you learn to BUY HIGH AND SELL LOW. You must learn to follow the trend of prices and realize that they are never too high to buy as long as the trend is up and never too low to sell as long as the trend is down.
We offer two different Gann Trading Courses, a large trading course originally written by Mr. Gann and a smaller Gann course written by Dave. Click-here for more information on Gann Trading Courses