Gann’s 29 Rules of Success

©Halliker’s Inc. Reprinted with permission of Traders World Magazine (www.tradersworld.com)

Rule #1 : Strive for Success

To be successful the most important rule is to strive for success. This means you must
exert effort and put a lot of hard work into your effort. You must have both the short term
and long term charts necessary for trading the markets you trade. They must be always
up-to-date and you need to watch them on a daily basis so your mind gets use to their
price and time movement. You will then learn the secret of trading and see how the entire
price movement continually evolves.

Rule #2: No One Owes You Anything

You must succeed on your own. It is all up to you. The markets, stockbrokers, brokerage
firms, news letters don’t owe you anything. Gann never took anyone’s newsletter. He did
it all himself. The markets are there to provide you a service for buying and selling the
markets you are trading. They really don’t care that you make money. The markets are
there for the brokerage fees. The more you trade, the more money the brokerage firms
and exchanges make. You must be knowledgeable of a reliable trading method that you
can use to extract money from these markets. This method must be able to help you
understand the price structure of the markets in regards to time and price movement.

Rule #3: Plan You’re Way to Profit

when you enter a trade you should have a figured a game plan for both the entry and exit
of the trade. The plan should be definite and not subject to changes to your psychology
during market hours. Gann knew exactly what he was doing all the time. You should
have a stop in the market at all times, because you never know when a time cycle might
turn against you. You should also have a profit objective in the market. So many traders
today lose because they are using computer oscillators to trade with and they never know
where they are going. They usually end up on trading with rumors and tips and use hope
and fear to try to make a success of the markets.

Rule #4: Plan your Orders

You should always use price orders to enter the market. By doing this you will limit your
risk and you can have a predetermined stop loss for the trade you are making. It also
eliminates slippage on the entry. When you exit the market, it can be with a limit order
based on the time and price objective. However, if the price has not been met by the end
of your time cycle, you should then exit at the market.

Rule #5: Profit Ratio

You should set your profit ratio at 3 times your risk factor. Go back on the previous
charts of the market you are trading and determine how much the market has risen or
fallen and then set the loss ratio based on that. For example, if you have found that wheat
usually rallies 12 cents then you should have a stop set at 4 cents.

Rule #6: Trade in Private

Never under any circumstances reveal your trading positions to anyone. Your mind must
be in complete harmony with your trading positions. When you reveal your positions to someone, they will immediately start to question the trade and start to erode your
confidence and concentration in the trade. You will then be a less effective trader and
eventually lose.

Rule #7: Margin

Over trading on low margins is why so many people lose in the markets. You should
never put a position on the risks over 10% of your capital. Every position you have in
commodities should be backed with 3 times the minimum exchange margins. That means
if the minimum exchange margins on wheat is $700 then when you buy a contract of
wheat, it should be backed with $2100. This backing can be done in several ways. You
don’t have to have the money sitting in the brokerage account. It can be in a money
market account or in Tbills.

Rule #8: Double Tops

Double tops offer you the best method of selling a market. What is happening is that a
time and price high is being challenged. In most cases, the upward timing of the market
has run out and it is in a downtrend. You should use the first rally to test the top as a
selling point. In many cases, it ends up being a double top. Check back on the particular
market you are trading on previous double tops and see what the market needed to do to
get through and break the double top. It is usually 1-2 percent of the price of the current
market. You should then set your stop based on that. The distance between double tops is
important. The longer the distance the more important it is. Double tops on yearly charts
are the most important, and then monthly and then daily are important. This is why you
should always be looking at long-term charts to see these tops

Rule #9: Double Bottoms

Just like double tops, a good double bottom offers an excellent trading opportunity. Most
major bull markets are created from these bottoms. Always keep an eye on all charts for
this development. Place the orders and use your protective stops to take advantage of
these trades.

Rule #10: Inside Day

Watch the markets for inside days. This means that the previous day’s market high and
low is inside of the previous day’s range. You will find that after a long-term price.
Brokers are constantly bombard with conflicting news which distorts the current view
move that this signal gives you an early warning that the market is about to reverse in the
opposite direction.

Rule #11: Reversal Signals

Understand and look for reversal signals. This will tell you the trend of the market short
term. When the market runs up for more than five days and then gaps up, fills that gap,
and closes lower for the day, it indicates low prices. You should expect the trend has
changed. This is the strongest reversal signal. Another reversal is a market that runs up
for 5 days or more and opens steady goes higher and then closes lower and under the
previous days close. In many cases, the market will move at least 3 days in the opposite
direction after one of these reverse signals.