W D Gann laid very fundamental strong set of rules for trading in any markets. Though these rules were written in 1930s and the markets were much different and those time, however these rules are still valid and applicable and traders who can follow these rules may ensure a successful trading career.
Many legendry traders follow WD Gann Trading Rules and Gann Trading Techniques in today’s markets and have achieved success and so can other traders. Also, please ensure you read the last para as that will be very crucial to follow these rules and set them in your sub conscious mind gradually.
- Capital sub division. Divide your trading capital in 10 equal parts and never risk more than one- tenth of your capital on any one trade. Trading Capital means trading capital and William Gann was trying to say that you must still have ensured your financial security before coming to the financial markets by keeping a major fund safe for future needs. So if your net worth is USD 100,000, then you must have secured 90% for your future and used 10% as trading capital and hence only USD 1,000 which is 1% of the total net worth should be used for each trade.
- Use Stops. Always protect yourself by limiting your loss and deciding at which price levels your analysis will go wrong.
- Never over-trade as this shall not respect the rule number one of capital subdivision in to small trades. The first rule should be seen in respect to the frequency of your trading. In case your frequency is higher than you need to adjust the stop amount as well. And also note that fast decisions are usually wrong decisions. I myself think of a trade many months, weeks and days in advance and only trade it if all the conditions are satisfactory and all the Gann analysis principles are fulfilled
- Never let a profit run into loss, after your position is in profit raise your stop, so that you will have no loss on the capital. This rule has an expectation that I follow, I use swing lows or highs for setting my stops, which means loss is allowed in the cases where the stop has not been revised above or below my entry level (as the case may be applicable).
- Do not trade if you are in doubt, never buy or sell if you are not sure of the trend according to your charts and checklist. W. D. Gann meant here that try to enter in those trades which have confirmed your filtration criteria or the trades that have high probability of going into your favor.
- When in doubt get out, and stay away when in doubt, capital safety is primary, enjoy the time in other activities, write a poem, watch cartoon, phone a friend and let the market reach the point of conformity or trade in some other familiar market.
- Always trade in liquid markets, avoid illiquid stocks, commodities, currency futures.
- Divide your capital risk by trading in more than one (stock, commodity or currency) future. Two to three max. W Gann naturally meant risk diversification in this rule as stocks and commodities also carry individual risks which are different from overall market risk.
- Never limit your orders or fix a buying selling price. Trade at the market. William Gann wrote this as rule as he knows catching the exact top or bottom might not be possible for a trader and he may miss a profitable move. So once the trader is confirmed that now is the time of reversal he should execute the trade with the genuine stop as buffer for the position to start getting converted in to profits.
- Don’t close your trade without a reason, follow with stop order to protect your profits.
- Accumulate your surplus funds, once you have a series of winning trades and keep these funds in a savings account and use them only in case of market panics.
- Never buy or sell to get a scalping or minuscule profit.
- Never average a loss, this is one of the greatest mistakes.
- Never get out of the market just because you have lost your patience or get into the trade because you became anxious and could not handle waiting any more