One Rule that Every Trader Should Follow

Born in Lufkin Texas in 1878, William Delbert Gann, usually referred to as W.D. Gann, was a renowned market operator on Wall Street between the years 1900 and 1955.

He developed a knowledge which could predict market highs and lows years in advance. That’s all on record.

Each year W.D. Gann published a forecast for his subscribers. In his 1929 forecast, which is widely available, he calls the Dow top to the very day, a full year in advance!

If you want to make a success in markets, his books are required reading. What strikes me about his books is that W.D. Gann gives you all the technical tools, but he also covers the non-technical aspects, and takes a far more holistic approach to trading.

For example, in Chapter 7 of his book Truth of the Stock Tape, Gann gives four essential qualifications needed to make a success in markets.

One of those essential qualities is health and rest. This is what Gann prescribes,

At least twice a year a man should close up all of his trades, get entirely out of the market, and go away for a vacation or stay away from the market and rest up. Let your mind rest and your judgement get clear. The man who continually sticks to any business too long without a rest or change gets his judgement warped. He gets in a rut and sees things from a one-sided point of view.

This is an area few other trading books cover. But if you’re continually in the market, without any rest, trying to trade everything that moves, you’re going to get burnt out, or lose your money, or most likely both.

This aspect of taking a break was an important point for W.D. Gann, because he repeats a similar message in his other books. For example, in How to Make Profits in Commodities, from page 11, he writes

TIME TO STAY OUT OF THE MARKET: This is something important for everyone to know. You cannot make money by trading in the market every day or by getting in and out every day. There comes a time when you should stay out, WATCH and WAIT until you determine a DEFINITE CHANGE IN TREND. Long periods of rest and relaxation protect your health and help your judgement which will result in profits later.

W.D. Gann has more to say on taking a break in chapter 3 of the Wall Street Stock Selector, under the heading, ‘When a Man’s Trend Changes.’

Gann relates a personal story of how he made 200 consecutive trades without a loss. Modestly he states, he did not believe he could not make even 50 trades without a loss,

…but I did continue to make perfect trades and close every trade with a profit, until I had made 200 trades. This run of luck or up trend that I was in, had run for some time.

He continues the story by saying he then took a very small loss, and then proceeded to take a series of ever larger losses,

…I was bucking my own trend. My period of good luck had run out, and I was trading in a period which should have been for rest, recreation, and gaining knowledge.

So Gann makes it clear there are times you need to take a rest. Trading markets can become a stressful occupation and many traders become battle weary. You need give some attention to your health.

W.D. Gann then gives you a rule to trade by,

….one rule that every trader should watch and follow is, just as soon as he makes two or three wrong trades after a long series of profits, he should quit the market and take a rest. Get away from the market. Allow plenty of time for his judgement to clear up. Then when he thinks he is right again, make a start on a small trade. If the first trade goes against him, he should quit again and stay away. Then when he starts again if his first two or three trades turn profits, he can then press his luck and expect a period of success, until he sees another sign that the market has turned against him, when he must again get out of the market.

We’ve all had experiences as traders of having a good run of profits, only to give it all back to the market. Gann here gives you as simple rule to keep some of those profits.

We all have times where things are not quite clicking for us. If two or three trades go against you, take a break and freshen up.

For many traders, we feel like we need to be in the market all the time or else we’re missing out on the opportunities. But W.D. Gann, (who knew a little bit about markets), makes it clear that you do not have to be in the market all the time to make money. That it was beneficial to be out of the market for periods. Then you are able to see things clearly as they really are, without your hopes and fears.

So if you’re trading is leaving you a little battle weary, or if you are putting a few losses together, get away from the market. Take time for a vacation and protect your number one asset, your health.

If you want to know a little more about the work of W.D. Gann, and how it all fits in with the real estate cycle and with markets today, then go here. You won’t get this information anywhere else.


Terence Duffy,
Lead Researcher, Cycles, Trends & Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia