William Gann’s ‘supernatural’ school of trading

In 1909 a magazine called the Ticker and Investment Digest interviewed a mysterious investor named W.D. Gann.

Gann had already achieved infamy and to get to the bottom of his methods, they decided to audit his trades in real-time over the space of a month.

He made 286 trades. 264 were profitable and 22 were losers. And his account grew over 1000%, all in the space of 30 days!

After the magazine went to print he was pestered to death by people wanting to know how he did it. And to be fair, he wasn’t shy about telling them.

Gann’s Secret Methodology

This is where things get a little strange…

Gann used his methods to make millions by shorting stock during the 1929 Wall Street crash, picking the top of the market to perfection.

Not only that, he managed to predict the abdication of the Kaiser…. and then he called an end of the First World War. To the exact date.  Six months prior to it happening!

So how on earth was he doing it?

He put some of it down to Astrology of all things: the alignment of the planets at certain times of the month.

Could it be true or was he just using that to throw people off the scent?

Mathematics and sacred geometry certainly seems to be a driving force behind his trading decisions yet no one knows for sure the source of his analytic tools.

He claimed some of his secrets came straight from the Bible where he used Gematria – a code-cracking technique of allocating numbers to letters – to reveal a secret that runs through the entire universe.

But he also spent ten years feverishly travelling the world in search of ancient knowledge. He spent time in India and in Egypt. It’s where he said he first discovered a method called the ‘Square of Nine’ carved into the wall of a temple.

And then he pitched up at the British Library for nine months in the early 1900’s, poring over historic stock charts night and day.

Through it all, he claimed to have uncovered accurately repeating cycles of time and price that let him pick the tops and bottoms of markets with hair-raising accuracy.

And this wasn’t being done with the benefit of hindsight either…

He was selling pamphlets calling the key reversal dates and prices for the forthcoming year in a wide range of markets. Charging $100 per book – that was a lot of money in those days – his readers lapped it all up and were thrilled with the results they achieved.

So like I said earlier, his work was often dismissed as weird mumbo-jumbo, ‘unscientific’ at best. But the thing with science is that the more we learn, the less we actually understand! Laws and theories that held watertight for decades are unraveling and being left for junk.

For instance, the scientific community has only recently discovered that 70% of the universe is made up of mysterious “dark energy” – no one knows what’s actually there!

And they’re having to come up with all kinds of strange “quantum” theories just to make provision for the things they’re now observing.

So if cutting edge science can’t explain the laws of physics who knows what Gann might have been onto?

And his ideas are now getting serious attention from some big market players.

Here’s what they’re looking at…

Gann and His “Law of Vibration”

Gann indicated he had access to a secret law of vibration that ran through the natural world. It’s nothing to do with Fibonacci numbers or anything like that, but he does claim you can observe this effect on the entire natural world.

Plant growth, animal behaviour, and human behaviour are all driven by it – including how we make decisions in the markets!

He appears to have traded on the idea that wherever human behaviour is collected en-masse (like in the markets) this vibration will make its appearance and leave a specific recurring pattern behind as a footprint.

Gann simply calculated where the next footprint would fall and got ready to trade!

It means his theory would have three wide-ranging implications:

1) It suggests there are forces at work that we do not understand. Nothing new there. After all, it is a bit arrogant to think we already know everything there is to know about the way the universe works.

2) It suggests group behaviour is not random and that an unknown process somehow organises the behaviour of group members. Again, that’s an idea most traders will be comfortable with. One of the first books on most trader’s recommended reading lists is MacKay’s Popular Delusions and the Madness of Crowds. It’s precisely about this effect and how we seem to get caught up in speculative market bubbles because of it.

3) It would mean when individuals get caught up in group behaviour they act according to the agenda of the group and not by their own code. And this makes sense. Think how otherwise level-headed individuals get caught up in the fervor of religious fanaticism or in the rampage of a rioting mob.

So if you knew the signs to look for, are Gann’s methods something you’d seriously investigate, or does it all sound too far-fetched?

While you’re having a think about that, here are some of his more conventional trading rules:

Gann’s Ten Never-Fail Trading Rules

1) Never let a profit turn into a loss. Trail your stop so you cannot lose capital

2) Don’t go against the trend. Never trade if you are not 100% sure of the current trend your charts are showing

3) If in doubt, get out

4) Trade only active markets. Don’t churn yourself up in slow, quiet ones.

5) Don’t exit your trades without good reason. Always have a definite plan – and stick to it

6) After you’ve enjoyed a series of profitable trades, put some money to one side. Don’t get over-confident and risk losing it all.

7) Always avoid taking small profits and big losses

8) Never cancel a stop loss or move it further away from the market.

9) Don’t overtrade. Bide your time and avoid trading too often.

10) Avoid ramping up your trading activity after a winning run. Pride comes before a fall

So what did you decide – interested in learning more about these mysterious trading techniques?

Well, the good news is I’ve got two books to recommend to you.

The first is written by Gann himself. It’s called Tunnel Thru the Air and he says he’s hidden all his secrets inside it. You have to read it three times though… first as a straightforward novel, secondly to realise some of the hidden meaning, and lastly to uncover the secret itself.

You can read a free online version of the book here.

Just don’t forget me if you do crack the code!

And if you fancy a more straightforward read, have a look at this one – I’ve linked to it on Amazon:

The Law of Vibration: The Revelation of William D. Gann by Tony Plummer.

Tony has spent 20 years doing the heavy lifting for us and reckons he’s figured out what Gann was talking about. It’s all fascinating stuff.

Be Prepared: Market Moving Data Coming This Week (London Time):

Wednesday 24th May:
13:45     EUR        Draghi speaks
15:00     USD       Existing Homes Sales
15:00     USD       Crude Oil Inventories
19:00     USD       FOMC Meeting Minutes

Thursday 25th May:
09:30     GBP       Gross Domestic Product

Friday 26th May:
13:30     USD       Core Durable Goods
13:30     USD       Gross Domestic Product

Monday 27th May:
– UK & US Holiday

Tuesday 28th May:
15:00     USD       CB Consumer Confidence

I hope you enjoyed reading about the enigmatic WD Gann but what do you think – should we consider all possible approaches to trading or are some ideas just too incredible? Let me know your thoughts.