English Pattern Price and Time - Sample Chapter 1

Who Was W. D. Gann?
If not the first technical market analyst, W. D. Gann was certainly among the more successful. Creating and publicizing a new approach to analyzing markets, Gann claimed to have made a world’s record in leverage and accuracy more than once, that he had developed trading strategies for speculators, and that he could predict market moves to exact price levels.

William Delbert Gann was born on a cotton ranch on June 6, 1878, in Lufkin, Texas. He displayed a strong aptitude in mathematics during his early years, completed a high-school education, and started trading in 1902 at the age of 24. By his own admission, Gann’s early trading was based on “hope, fear and greed,” all of which he later realized were not compatible with a successful trading strategy.

After losing significant sums of money, Gann began to observe that markets followed mathematical laws and certain time cycles. He was particularly interested in the connection between price and time, a relationship he referred to as the “square” of price and time. He began studying this interaction diligently, even traveling to England, India, and Egypt to research mathematical theory and historical prices.

In developing his theories, Gann was undoubtedly one of the most industrious technical analysts. He made thousands of charts displaying daily, weekly, monthly, and yearly prices for a wide variety of stocks and commodities. He was an avid researcher, occasionally charting a price back hundreds of years. At a time when most market analysis was strictly fundamental, Gann’s revolutionary theories relied on natural laws of mathematics, time cycles, and unshakeable conviction that past market activity predicted future activity.

Gann moved to New York City in 1908. He opened brokerage offices at 18 Broadway and began testing his theories and techniques in the market. Within a year it was clear to others that Gann’s success was based on more than just luck. A 1909 article in The Ticker Digest explained that “… Mr. Gann has developed an entirely new idea as to the principles governing stock market movements.
[From an article in the December 1909 issue of The Ticker and Investment Digest reprinted in the W.D. Commodities Course, Lambert-Gann Publishing Co., Inc., Pomeroy, Washington, p.178.]

In this article, Gann asserted that most traders enter the market without any knowledge or study, and that most eventually lose money. He explained that he noticed a cyclic recurrence in the rise and fall of stocks and commodities, and decided to study and apply natural laws to trading strategy. Gann indicated that months of studying at the British Museum in London revealed what he called the Law of Vibration.

This law determines the exact points to which a stock would rise or fall, and predicts the effect well before the Street is aware of either the cause or the effect. Beyond this vague explanation, Gann was reticent about his strategies and unwilling to explain his theories in any detail.

Although past success is not an indication of future results, Gann’s trading was extremely successful, at least to a point. An analysis of his trading record over 25 market days revealed that Gann made 286 trades, 264 of which were profitable. His success rate of 92.31 % turned an initial investment of $450 into $37,000.

A colleague of Gann’s said, “I once saw him take $130.00 and in less than one month run it up to over $12,000.00. He can compound money faster than any man I ever met. “It is not surprising that the press concluded “… such performances as these … are unparalleled in the history of the street.” Although Gann’s theories were apparently profitable at times, he was equally subject to the potentially substantial risk of loss that is inherent in commodities futures trading.

Gann issued annual market predictions of major moves and exact support and resistance levels. Newspapers around the country kept track of his predictions for 1921, 1922, and 1923, substantiating his accuracy. In January 1929, he issued an annual forecast that read:

September- One of the sharpest declines of the year is indicated. There will be a loss of confidence by investors and the public will try to get out after it is too late … A “Black Friday” is indicted and a panicky decline in stocks with only small rallies.

His facility in analysis and prediction extended to areas other than the market. He predicted the exact date of the Kaiser’s abdication, the end of World War I, and the elections of Presidents Wilson and Harding. Gann also predicted the occurrence of World War II thirteen years in advance and described the stealth bomber sixty-one years before its invention.

Gann’s original reticence about his success later turned into an almost religious fervor to share his knowledge. He had begun writing during his trading and papers, some of which were dated just two weeks before he died, it is evident that Gann was continuing his pursuit of a perfect trading system. For example, there is written evidence that he was developing a three-dimensional chart that incorporated price, time, and volume and how they applied to the market.

Since his death, rumors of a $50,000,000 fortune have circulated throughout the futures and stock industries. However, this figure is unsubstantiated by the material that was left after his death. For one thing, market movement and volatility did not offer such an opportunity. Also, brokerage statements indicate that he traded an account with a balance in excess of $2,000,000, and his will, filed in Miami, indicates a figure considerably below $50,000,000.

Most of the evidence of Gann’s trading success is found in the numerous articles by newspaper writers who witnessed and verified his short-term trading activity. These articles, which have been reprinted in many of his books, highlight his trading successes in terms of both accuracy and trading results. Since Gann was a great promoter of his trading books and courses, only his successes are highlighted. Although his losing streaks and major losses are never cited. Gann always warned about the danger of trading without stop-loss orders.

Following Gann’s work in chronological order shows that he experienced losses when he first started to trade. In addition to trading losses, Gann also lost money in bank and brokerage firm failures. These events probably played a major part in his desire to succeed in the market. Like many traders today, Gann initially derived income from selling his advisory service and his books while simultaneously trading. His obituary lists him as an author and a stockbroker; as his popularity and success grew, however, it is probably safe to assume that he turned more of his attention to trading.
[Ibid., p.180. From “1929 Annual Stock Market Forecast” in Truth of the Stock Tape (originally published in 1923 by Financial Guardian Publishing Co.; reprinted by Lambert-Gann Publishing Co.), p.36.]

As he got older, his health began to fail, which made writing and lecturing very difficult. During this time he sold his publishing rights to Ed Lambert and formed Lambert-Gann Publishing. Based on this business deal, he was able to maintain some income by reprinting his books and courses, but, in my opinion, he focused more attention on deriving an income from the market. In May 1954, he stated “I am nearing my 76th birthday and am writing this new course of instructions, not to make money (for I have more income than I can spend)….

Based on the physical evidence left behind and the substantiated articles highlighting his trading activity, Gann did trade the markets successfully but did not amass the huge fortune alleged by rumor.
[From the W. D. Gann Commodities Course, Lambert-Gann Publishing Co., Inc., Pomeroy, Washington.]

No comments: