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William. D Gann.
He was one of the most successful traders that ever lived.
Born in Lufkin, Texas on June 6, 1878, William D Gann started commodity
trading and stock market trading in 1902, and moved to New York City in
1908, opening his own brokerage firm, W.D. Gann & Co., at 18th and
Broadway.
William D Gann took more than 50 million dollars in profits out of the
markets! In todays markets that would be closer to 500 million dollars!
After many decades of incredible trading success, W D Gann moved to
Miami, Florida where he continued his writings and studies up until his
death on June 14, 1955.
So accurate were W.D. Ganns techniques that in the in the presence of
representatives of a major financial publication, he made 286 trades in a
period of 25 market days, on both the long and short sides of the market.
Of these, 264 trades were profitable! Read articles on W.D. Gann in our
Trading Resources Articles. In 1933 Mr. Gann made 479 trades during the
year. 422 were winners and 57 were losers. The return on his capital was a
staggering 4000%.
Mr. Gann consistently repeated these incredible trading feats, issuing
amazing forecasts in a number of markets one year in advance.
His use of Natural Law and geometric proportions based on the circle,
square, and triangle are as effective today in the Stock Market and
Commodities Markets as they were 50 years ago. His techniques work in
any market. His methods seem a bit unusual and even mystical to many
traders, but they have proven themselves time and again over the past
century.
Since his death, W.D. Gann has become something of a legend in
financial circles. His capacity to make big financial gains (both on the
market, the Cuban lottery and horse racing) gave him a reputation for
uncanny knowledge of market trends.
THE PROGRAMME
INTRODUCTION
Preplanning
1:
10
i) The G1 Level
ii) The G2 Level
iii) The G3 Level
iv) The G4 Level
Rules To Apply
B: The 2nd Check C: The 3rd Check D: The 4th Check E: The 5th Check F: The 6th Check G: The 7th Check -
2:
11
12
13
14
Percentages
50% Retracements
The Lesser Levels
Past Tops and Bottoms
Triple Tops and Fourth Attempts
Natural Number Levels
29
30
30
30
31
32
3:
TAKING PROFITS
A: Taking Profits After Buying
4:
15
18
20
22
24
26
27
33
34
35
36
37
39
40
41
42
43
LIMITING LOSSES
A: Cutting Losses After Buying
B: Cutting Losses After Shorting
IN CONCLUSION
THE CASE STUDY
The Japanese Nikkei Index
45
46
47
50
16,17,19,21,23,25,28,48-49
INTRODUCTION
t was on a hot, sunny, Spanish day in August 1972 that I found myself
wandering my weary way down a back street of the historic Majorcan
city of Palma. Normally I would have found the weather and the
environment exhilarating. However, on this occasion I was walking with a
heavy heart for I was returning from the local hospital where my three year
old son was suffering from a very badly crushed foot after an accident in
the hotel in which we were staying. In order to while away some time and
relieve my anxiety, I decided to call into a small bookshop which I had
noticed on the far side of the narrow street in which I was walking. I entered.
The step I was about to take would change the rest of my life.
Oneofthemostastonishingpredictionsmadeby
Mr. Gann was during last summer [1909] when
hepredictedthatSeptemberwheatwouldsellat$1.20.
Thismeantthatitmusttouchthatfigurebeforethe
endofSeptember.AttwelveoclockChicagotime,on
September30th(thelastday),theoptionwasselling
below$1.08anditlookedasthoughtheprediction
wouldnotbefulfilled.Mr.Gannsaid."Ifitdoesnot
touch$1.20bythecloseofthemarket,itwillprove
thatthereissomethingwrongwithmywholemethod
ofcalculation.Idonotcarewhatthepriceisnow,it
mustgothere."ItiscommonhistorythatSeptember
wheatsurprisedthewholecountrybysellingat$1.20
andnohigherintheverylasthouroftrading,closing
at that figure.
After my experience of the sheer ignorance
of some market operators and my own
nightmare, this was a bolt from the blue.:
"Ifitdoesnottouch$1.20bythecloseofthemarket,
itwillprovethatthereissomethingwrongwithmy
resolved to leave the guessing game to others and I am delighted to have done so as
I know of only a few using this approach who have been successful. The performance
of funds managed on fundamentalist principles, this being the vast majority, fail in the
main to keep ahead of the averages.
At the end of a 5 year period I had consumed much and thrown most away. I was left with
an interest in Joe Granville's moving averages; the pattern principles of R. N. Elliott; and
the mathematical assessments of W. D. Gann. During that time I had found the bottom of
the 1972/1975 bear market and had delighted my pension clients by keeping them liquid
in the frightful fall of 1974 and then entering the market in the last week in December
1974. (SEE CHART 1)
CHART 1
Monthly
Nevertheless, all was not well. Overall, the practice of combining a number of differing
principles had, like mixing the primary colours together, produced a murky grey mixture of
success and failure.
Granville's moving average techniques had a detrimental psychological effect, being by
nature late in triggering buy and sell signals. More importantly, the technique is doomed
to failure when floundering in trading ranges, where a series of damaging losses are
inevitable.
The Elliott wave principle was an interesting intellectual exercise but with, for me,
severe inherent problems. In the corrective stages there are a myriad of alternatives to
come to terms with and there is always doubt as to where the waves commence, thus
leaving many questions unanswered. Doubt is one of the trading curses, and a luxury the
investor can do without.
My breakthrough occurred when I realised that I had had the answer back in 1972 when my
son's misadventure directed me to that small second-hand bookshop where, by chance, fate
had placed 45 Years in Wall Street by W. D. Gann, with just a little of the book peeping out
from under a testament to that great painter Goya.
The purpose of this treatise is to introduce the basic principles of one of the worlds great
traders, W. D. Gann, and so supplement the Gann books that have just been translated into
the Japanese language.
erhaps the predominant reason for Ganns methods not being used more widely is
that practitioners in the early stages of development generally concentrate on the
sophisticated aspects of the techniques which, whilst having a magical fascination,
require long and concentrated study. This can be a very rewarding intellectual exercise
but it complicates the issue and does not provide early practical assistance in making
profits on the markets.
Above all, it should be realised that Gann made most of his fortune in the early part of
his life before he discovered the sophisticated aspects of his analysis. A further
constraint on appreciating the genius of Gann is that his most rewarding techniques
were not disclosed to the general public in his books, reserved as they were for those
who paid for his exclusive courses. It is therefore difficult for the student to both fully
absorb and then practice the method without an extensive period of study.
In my case it took me several years to first absorb the information and then place it
into its historical context. It was then necessary to analyse it before coming eventually
to the realisation that, by simplification, the discoveries could provide a discipline to
open up a comparatively easy route to profitable investment. In fact, the less
sophisticated the investor, the better the chance of success. Consequently, the following
method has been developed to eliminate the need, at least in the early stages, to
delve into the more academic aspects. New students, even without any previous
knowledge of technical analysis, can commence trading profitably within a few months
of study.
My 15 years' experience of teaching thousands of Gann students has taught me that
the simpler the chart the more profitable the results. My endeavour will be to be as
clear and as precise as possible with the help of simple but helpful charts.
In this essay I will submit the step-by-step procedure I teach which I have discovered
over the past few years has the maximum impact on new Gann students without
assaulting their intellectual capabilities. Perhaps a more comprehensive book will follow,
but I am certain that an understanding of the basics and their application will be much
more helpful than diving in the deep end at the outset.
PRE-PLANNING
The biggest advantage Gann's rules bestow upon his students is that the system is the
only one I know which allows advance planning of trades and is not laggard in nature.
It allows the investor to isolate decision areas both above and below the current value of
the analysed investment. The levels can be identified weeks, months or even years in
advance! (SEE CHART 2). If and when these pre-determined areas are reached, a buy, sell
or hold decision process based upon the daily moves is followed.
CHART 2
300%
200%
66.66%
-50%
25%
Monthly
1:
FINDING
THE DECISION LEVELS
ne of the most important discoveries Gann made was that there is a relationship
between every low price and every future high price. Also, for every high price
there is a relationship to every future low price.
If this claim is true, then by studying historical data the investor can establish all important
future highs and lows. That this is possible is clearly demonstrated by CHART 3, the weekly
variant of which was published in the Euromoney training manuals early in 1992 and
which isolated nine months in advance the exact top of the British Pounds rally against
the US Dollar.
CHART 3
33.33%
Monthly
This is an exciting prospect which, as a Gann student of 20 years, I now take for granted
but which most find difficult to accept. It is now my challenge to put before you the rules
which will enable you to establish these turning points for yourself, perhaps even decades
in advance as evidenced by CHART 4.
CHART 4
-66.66%
200%
75%
10
Monthly
A word of warning :
Due to the nature of Ganns techniques it is vital that you use accurate and regularly
corrected data.
Do not assume that data from the providers is necessarily accurate. Check it
out for Gann will not work on inaccurate data.
The chief reason why I did not realise the real significance of Gann in my early years was
that I was using inaccurate quoted prices. A mistake that wasted several years of profitable
trading & resulted in the unnecessary checking out of other, inferior methods of analysis.
11
G1
G2
12
G3
G4
I)
THE G1 LEVEL
This G1 level is the most important of all Gann levels and is found by simply taking the
extreme high price and dividing it by two. It is therefore 50% down from the extreme high
price.
CHART 5
Historical High
The G1 Level
Mon 2 Dec 1985 to Thu 21 Oct 1993
Monthly
CHART 6
13
Monthly
II)
THE G2 LEVEL
This is the second most important level and is found by adding the historical high and low
together and then calculating the mid point by dividing the result by 2.
SPAIN MADRID SE
CHART 7
Historical High
The G2 Level
Historical Low
Monthly
CHART 8
14
Monthly
III)
THE G3 LEVEL
The third most important level is found by dividing the historical high price by 4.
CHART 9
G2
G1
G4
The G3 Level
Mon 3 Sep 1979 to Thu 21 Oct 1993
Monthly
CHART 10
FUJI BANK
Historical High
The G3 Level
Mon 1 Jul 1985 to Fri 22 Oct 1993
15
Monthly
IV)
This level is 25% of the difference between the historical high and low added to the historical
low, and is calculated as follows :
CHART 11
Historical High
The G4 Level
Historical Low
Mon 1 Jan 1979 to Fri 22 Oct 1993
Monthly
CHART 12
The G4 Level
Historical Low
16
Monthly
hese then are the most important levels to influence future prices and are the first
calculations to make when anticipating future highs and lows. They should not be
used in isolation but should become the first and most important of the series of
checks which will direct your attention to an important turning point in the future.
The first step has been taken. Now it is important to adhere to the following rules in order
to interpret the current price in the context of these levels. Very often the rules will have a
profound effect on your assessment of the current position and of possible future
developments.
RULES TO APPLY
TO THE MAJOR' GANN LEVELS
RULE 1
The first time the level is hit is always the strongest and safest point to buy
against the trend. Each subsequent test is less safe but still a strong point for a
change in trend. (SEE CHART 5).
RULE 2
The levels are both support and resistance points and are equally effective in
reversing both falls and rises to the levels. (SEE CHARTS 8 & 9).
RULE 3
If the G1 & G2 levels are far apart there will often be a trading range within the
levels. (SEE CHART 9).
RULE 4
If the G1 level is broken on the down side, in the vast majority of cases the fall
will only be reversed when it hits the G3 level. (SEE CHART 9).
RULE 5
If the G1 level is broken and the G4 is between the G1 & G3 levels there will
often be a rally from the G4, but this will be only temporary in nature as the
likelihood is that the rally will reverse & finally fall to the G3 level. (SEE CHART 8).
RULE 6
If the G1 & G2 levels are wide apart the midpoint between the two levels often
proves to be a support and resistance level.
TO SUMMARISE
The G1 Level = 50% of the extreme high & zero.
The G2 Level = 50% of the total of the extreme high & extreme low.
The G3 Level = 25% of the extreme high & zero.
The G4 Level = 25% of the extreme high & extreme low added to the extreme low.
These then are the first calculations to place on your chart, from which the major
turning points of the future can be determined . Rules 1 to 6 will give you an
insight as to where you stand when you first make your analysis & will allow you
to reassess your position as time passes. If, for instance, you are below the G1
level, you will probably see a fall, firstly to the G4 level & then to the G3 level.
17
THECASESTUDY-TheJapaneseNikkeiIndex
The Japan Nikkei has been chosen as our case study in which we will follow each
check to the final conclusion. The study should anticipate all the major turning points
of the index. Each step will be taken after the relevant section has been explained.
Using this procedure will help to develop the analysis in a logical manner. The analysis
should be looked at as a jigsaw puzzle and the aim is ultimately to place all the pieces
correctly to construct a complete and clear picture.
CHART 13
Monthly
I have every confidence that the techniques will achieve this purpose to your total
satisfaction. The same exercise can be applied to all financial indices and instruments
anywhere in the world, whether they be individual shares, commodities, currencies,
interest rates, bonds etc.
In the dozens of seminars and workshops I run each year I challenge the delegates to
pick any investment to test whether or not it is ruled by the Gann principles laid down
in this treatise. Over the last decade the Gann analysis has never let me down.
Despite the lack of preparation I know of no other technique in which proponents are
prepared to take on this task. Gann techniques once mastered are magical in their
application to the whole of the speculative markets. I hope the following case study
will go some way to proving the point.
18
CASESTUDYNO1
JapanNikkeiIndex-THEMAJORGANNLEVELS
ThemajorGannlevelscomputeasfollows:theG2(21,375);theG1(19,475);theG4(12,588)
&theG3(9,738).
JAPAN NIKKEI
SPREAD (X 10)
January 1990 :
All Time High
July 1975 :
All Time Low
Mon 3 Mar 1975 to Fri 22 Oct 1993
Monthly
Up to the time of writing the index has acted strictly in accordance with the major
Gann rules and levels.
CHART 14
G1
G4
G3
19
Monthly
25%**
50%*****
75%
100%*
125%
150%
etc
25%**
12.5%
6.25%
3.125%
etc
33.33%**
66.66%*
100*
133.33%
166.66%
200%*
etc
33.33%**
16.66%
8.33%
4.165
etc
The most important percentage is the 50% level from past important highs and
lows.
The next in order of importance are the 100/200/300% etc.
If the 25% and 33.33% levels occur at the same level, this is as important as the
50% level.
The 25% & 33.33% in isolation are next in importance.
The rest follow.
First identify the significant highs and lows, then apply the 25% percentages followed by
the other percentages calculable from these levels. Next find the levels which fall into
groups above and below the current price. The objective is to find a series of percentages
which group around the other checks especially the Major Gann levels and the 50%
retracements. (SEE NEXT CHECK).
When the bands of upper resistance and down side support have been established, take
off all the other levels to leave an uncluttered chart with which to assess your future
trades.
20
CASESTUDYNO2
JapanNikkeiIndex-PERCENTAGEMOVES
Now we turn to look at how the top of each rally could have been anticipated by applying
the set percentages as provided by the 2nd check.
CHART 15
16.66%
25%
33.33%
-25%
33.33%
Monthly
21
22
CASESTUDYNO3
JapanNikkeiIndex-50%RETRACEMENTS
CHART 16
r.5
TheMarch1991highwasat27,270:
the 50% retracement of
the July 90 high (32,420)
and October 90 low (19,780)
is 26,100.
TheSeptember1992highwasat19,260:
the 50% retracement of
the January 92 high (22,200)
and the Aug 92 low (14,190)
is 18,195.
23
Monthly
In our first check we looked at the G1, G2, G3 & G4 levels, which we calculated by reference
to the extreme highs and lows. Gann also divided the extreme high and zero and the
extreme high and the extreme low by eighths and thirds. The results are then used as
levels of lesser importance, in support of the main levels of the 1st Check.
Example : where the extreme high is 100 and the extreme low is 20.
EXTREME HIGH 100
7/8
3/4
5/8
1/2 (G1)
3/8
1/4 (G3)
1/8
87.5
75 *
62.5
50 ****
37.5
25 **
12.5
0
EXTREME HIGH
7/8
3/4
5/8
1/2 (G2)
3/8
1/4 (G4)
1/8
EXTREME LOW
24
100
90
80 *
70
60 ***
50
40 *
30
20
CASESTUDYNO4
JapanNikkeiIndex-THELESSERLEVELS
The levels found by using Checks 2 & 3 (Percentages and 50 % Retracements) should
then be inspected to see if the lesser levels provide support but make a mental note
only of their presence. Do not leave them on the chart.
CHART 17
G1
G2
G4
G3
25
Monthly
Look to see whether there have been significant tops and bottoms in the past to support
the levels that have emerged from Checks 1 to 3.
Buy when prices advance above these old tops and sell when prices fall below
these levels.
An important level at which to buy is on a break into new high ground, while the significant
level at which to sell is when the price falls below an historic low.
26
CASESTUDYNO5
JapanNikkeiIndex-PASTTOPSANDBOTTOMS
Make a note of the previous important tops and bottoms which support your calculated
levels as per Checks 1,2,3 & 4. If there is no support from past highs and lows treat
your progress to date with some suspicion. It would be prudent to start again as your
decision levels should normally reflect past tops and bottoms.
CHART 18
October 1986
low supported
1992 lows
November 1987
lows supported
1990 and 1992
lows
Mon 1 Aug 1986 to Thu 21 Oct 1993
27
Monthly
Special note should be taken of any triple bottom or top formations which develop at
support or resistance levels.
A TRIPLE BOTTOM will normally advance faster and further than the previous two moves.
Should the move not rise rapidly from the triple early in its rise but climb slowly, the
advance will be usually reversed at the 50% retracement of the previous fall and then
attack the lows again. This 4th attempt usually goes through.
A TRIPLE TOP has the reverse effect, with the fall faster and heavier than the previous
two falls. Again, if the move from the triple top is slow and sluggish, expect a fourth
attempt at the triple top level with a break into new high ground.
Weekly High/Low
1
28
This is a further check to establish that an important decision level has indeed been
located and to establish whether the price is on a natural Gann number. These numbers,
multiples and divisions of 360, are calculated as follows :
360
315 ( 7/ 8)
45 ( 1/ 8)
270 ( 3/ 4)
90 ( 1/ 4)
240 ( 2/ 3)
120 ( 1/ 3)
135 ( 3/ 8)
225 ( 5/ 8)
180 ( 1/ 2)
Some interesting features are:
29
CASESTUDYNO6
JapanNikkeiIndex-THENATURALLEVELS
The Nikkei index has stuck remarkably rigidly to movements associated with full and
partial circles as follows :
CHART 19
3
1
2
4
6 7
8
10
3-
4-
567-
89-
10-
Monthly
30
2:
TRIGGERING
THE SIGNAL
Now that the decision levels have been established, only patience is required as you wait
for your investment to approach the upper or lower decision level.
To trigger the buy, sell or short signal it is necessary to refer to Ganns trend indicator line.
31
As soon as the chart shows a lower bottom, move the trend indicator line to the
lower bottom.
Move the line back up to the top when a higher bottom and higher top is recorded.
move the trend indicator line to the higher top and then move it down to
the bottom of the day.
CONVERSELY, IF a lower bottom is formed in the early part of the day but the
price later goes up to a new high, then
move the line to the low for the day and then to the top for that day.
32
A within day
A WITHIN DAY occurs when a share makes a higher or identical low and a lower or
identical high to those of the previous day.
In other words, the spread for the day has remained within the previous day's
parameters.
IN THESE CIRCUMSTANCES,
keep the trend line at the low for the day if the previous moves show the
trend line on the lows.
SIMILARLY,
keep the trend line at the high for the day if the previous moves show the
line to have been on the highs.
Top
Top
Top
Bottom
Bottom
33
Keep losses small and you will survive even after a losing spell.
Allow your losses to grow and you will almost certainly fail.
34
I)
rising
TO A DECISION LEVEL
To verify strength you may find the following hints useful in deciding the day of your
purchase once the price has risen to a decision level. When you see a higher trend line
bottom form on or over the top level of the band of resistance this should alert you to
strength above the level of resistance, which implies higher prices.
BUY SIGNAL
Highest
level of
the band
DECISION LEVEL
This is a higher
trend line bottom
than the previous
one
Lowest
level of
the band
Buy on
strength
over this
high.
Notes A higher trend line bottom means one which is higher than the previous bottom.
'Band' means the area created by close percentage calculations.
When the chart shows that a higher trend line bottom has formed on or over the previous
bottom, higher prices are indicated. In this event, after the first hour of trading ask your
broker for the current price, & EITHER :
If the price is above the high of the previous day, then higher prices are indicated
and a buy will be triggered; or
Give the Broker instructions to buy over the high of the previous day
(ii)
Keep a check on the prices during the day and only buy if you see the
price strengthen above the high of the previous day.
or
REPEAT this process for every day that the higher trend line bottom persists, and has not
produced a price lower than the previous day's low.
35
falling
TO A DECISION LEVEL.
wait for a higher trend line bottom to form on or over the highest decision level
before considering a purchase.
To verify strength follow the procedure is as described above for buying but this time the
signal will be provided by a fall to the level of support followed by a higher trend line
bottom forming.
Buy on strength
over this high
BUY SIGNAL
Highest
level of
the band
Lowest
level of
the band
This is a higher
trend line bottom
than the previous
one.
DECISION LEVEL
Notes A higher trend line bottom means one which is higher than the previous bottom.
'Band' means the area created by close percentage calculations.
When the chart shows that a higher trend line bottom has formed on or over the previous
bottom, higher prices are indicated. In this event, after the first hour of trading ask your
broker for the current price, & EITHER :
If the price is above the high of the previous day, then higher prices are indicated
and a buy will be triggered; or
Give the Broker instructions to buy over the high of the previous day
(ii)
Keep a check on the prices during the day and only buy if you see the
price strengthen above the high of the previous day.
or
REPEAT this process for every day that the higher trend line bottom persists, and has not
produced a price lower than the previous day's low.
36
37
I)
rising
TO A DECISION LEVEL
wait for a lower trend line top to form on or under the lowest level of the decision
band before considering a short.
To verify weakness, you may find the following hints useful in deciding the day of your
short when the price has risen to a decision level. When you see a lower trend line top
form on or under the band of resistance this should alert you to weakness below the level,
implying lower prices.
Highest
level of
the band
Lowest
level of
the band
Short on
weakness
SHORT SIGNAL
Note A lower trend line top means one which is lower than the previous top.
When the chart shows that a lower trend line top has formed on or under the lowest level
of the decision level band, this implies that lower prices are indicated. In this event, after
the first hour of trading ask your broker for the price, & EITHER :
If the price is below the lowest price of the previous day, then lower prices are
indicated and a short should be considered; or
If the price is above the low of the previous day, do not short; or
Give the broker instructions to short under the low of the previous day
(ii)
Keep a personal check on the prices during the day and short if the price
weakens below the low of the previous day.
or
REPEAT this process for every day that the lower trend line top persists, and has not
produced a price higher than the high of the previous day.
38
falling
TO A DECISION LEVEL
a short could be considered on weakness below the bottom level of the decision
level band.
To verify weakness after a fall to a decision level, you may find the following hints useful in
deciding the day of your short. When you see a lower trend line top form on or under the
lower level of the band this should alert you to weakness below the level of support, which
implies lower prices.
SHORT SIGNAL
This is a lower
trend line top than
the previous one.
Highest
level of
the band
Lowest
level of
the band
DECISION LEVEL
Short on
weakness
Note A lower trend line top means one which is lower than the previous top.
When the chart shows that a lower trend line top has formed on or under the lowest level
of the decision band, this indicates lower prices. In this event, after the first hour of trading,
ask your broker for the price, & EITHER :
If the price is below the bottom price of the previous day, then lower prices are
indicated and a short should be considered; or
Give the broker instructions to short under the low of the previous day
(ii)
Keep a check on the prices during the day and short if you see the price
weaken under the low of the previous day.
or
REPEAT this process for every day that the lower trend line top persists, and has not
produced a price higher than the previous day's high.
39
40
3:
TAKING PROFITS
It is generally acknowledged that most investors have great difficulty in determining the
time to take profits. However, if strict rules are followed, taking profits can become one of
the easier aspects of successful trading.
41
TO PLACE A STOP LOSS subtract 1% from the lowest point of the last trend line bottom.
Daily High/Low
Daily High/Low
TREND LINE STOP LOSS after buying
After the first hour of trading, ask your broker for the current price, & EITHER :
If the price is below the low of the previous day, then lower prices are indicated
and profits should be taken; or
If the price is above the low of the previous day and the stop loss, do not sell; or
If the price is still on the stop loss but above the low of the previous day,
(i)
Give your broker instructions to sell under the low of the previous day
(ii)
Keep a check on the prices during the day and close the position if the
price weakens below the low of the previous day.
or
REPEAT this process for every day that the last price on the chart is on the stop loss.
42
I)
If the price is rising FAST to a decision level then consider the use of the Signal Day or
Day After Rule when the price hits the decision level area.
These rules are formulated to take into account that a sharp rise is often followed by a
sharp fall. The reason for applying them is that prices tend to fall far faster than they rise.
This could result in your profits being quickly eroded before the trend line triggers the sell
signal.
THE SIGNAL DAY' (SELL)
On the day that the price hits the decision level area, telephone your broker an hour
before the close of the market to ascertain the highest and lowest traded prices for the
day so far. From this information calculate the mean (middle or halfway) price. If the price
at the time of enquiry is below this level, this suggests lower prices and profits should be
taken.
THE DAY AFTER RULE (SELL)
If the Signal Day was not triggered, then the Day After Rule should be operated. After
the first hour of trading (on the day after the Signal Day), ask your broker for the last
traded price. If this is below the closing price of the previous day, then this indicates
lower prices and profits should be taken.
Highest
level of
the band
Lowest
level of
the band
DECISION LEVEL
100
95
90
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THEN, if the chart shows that the spread for the previous day was on or above the stop
loss level,
After the first hour of trading ask your broker for the current price, & EITHER :
If the price is above the high of the previous day, then higher prices are indicated
and profits should be taken; or
If the price is below the high of the previous day and the stop loss, do not sell; or
If the price is still on the stop loss but below the high of the previous day,
(i)
Give your broker instructions to cover above the high of the previous day
(ii)
Keep a personal check on the prices during the day and close the position
if the price strengthens above the high of the previous day.
or
REPEAT this process for every day that the last price on the chart is on the stop loss.
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I)
If the price is falling FAST to a decision level then consider the use of a Signal Day or
Day After Rule when the price hits the decision level area.
These rules are formulated to take into account that a sharp fall is often followed by a
sharp rise. This could result in your profits being quickly eroded before the trend line
triggers the signal to close your position.
THE SIGNAL DAY SHORT POSITION CLOSE
On the day that the price hits the decision level area, telephone your broker an hour before
the close of the market to ascertain the highest and lowest traded prices for the day so
far. From this information calculate the mean (middle or halfway) price. If the last traded
price is above this level, this indicates higher levels and profits should be taken.
Take profits on
Signal Day
Highest
level of
the band
Lowest
level of
the band
100
95
DECISION LEVEL
Notes It is only when you use the Signal Day or Day After Rule that we would recommend that you
know about the price movements during the same day. Normally, you should make your decisions
from your charts the following day. This will help you to avoid making emotional decisions and
will save you from unnecessary traumas caused by wide daily fluctuations.
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46
4:
LIMITING LOSSES
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Place the trend line on the daily chart. When you buy, your stop loss should be
placed 1% below the lowest point of the last trend line bottom.
Buy
signalled
Highest level
of the band
Place stop loss 1%
below the low
Lowest level
of the band
THEN, if the chart shows that the spread for yesterday was on or below the stop loss,
After the first hour of trading ask your broker for the price, & EITHER :
If the price is below the low of yesterday, then lower prices are indicated and
losses should be taken; or
If the price is above the low of the previous day & the stop loss, do not sell; or
If the price is still on the stop loss but above the low of the previous day,
i)
Give your broker instructions to sell (close the position) under the low of
the previous day
ii)
Keep a check on the prices during the day and close the position if the
price weakens below the low of the previous day.
or
REPEAT this process for every day that the price is on the stop loss.
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Place the trend line on the daily chart. When you short, your stop loss should
be placed 1% above the last high of the trend line top.
Highest level
of the band
Lowest level
of the band
Short
signalled
CUTTING LOSSES WHEN SHORTING
THEN, if the chart shows that the spread for the day was on the stop loss level,
After the first hour of trading ask the broker for the price, & EITHER :
If the price is above the high of the previous day, then higher prices are indicated
and losses should be taken; or
If the price is below the high of the previous day and the stop loss, do not sell; or
If the price is still on the stop loss but below the high of the previous day,
i)
Give your broker instructions to close the position above the high of the
previous day
ii)
Keep a check on the prices during the day and close the position if the
price strengthens above the high of the previous day.
or
REPEAT this process for every day that the last price on the chart is on the stop loss.
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THECASESTUDY-THEJAPANESENIKKEIINDEX
THEFINALPICTURE
CHARTS 20 AND 21 bring the various features discussed in the previous case studies
together to provide an analysis of the September 1992 decision level.
The features which created the decision level at 1900 were
the 'G1' level;
a50%retracement;
the 33.33% level from the 1992 low;
25%downfromtheNov1991high;
a rise of 11/4 circles;
the low of 1990;
a double top.
The 2 charts show the Index before and after the price hit the decision level.
The final chart is a daily chart showing the exact day to sell or go 'short' of the market
by using the trend line rules.
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CHART 20
The G1 Level
33.33%
The 1990 Low
-25%
r.5
Weekly
CHART 21
The G1 level
-25%
33.33%
r.5
Weekly
CHART 22
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Daily
IN CONCLUSION
"IwanttoimpressuponyoustronglythatifyouexpecttomakesuccessintheStock
Marketyoumustputinplentyoftimestudying,becausethemoretimeyouputin,
themoreknowledgeyougain,themoreprofitsyouwilltakeoutlater.Ihavegiventhe
ruleswhichwillwork;youmustdoyourpart:youmustlearntherules,actonthem
attherighttimeandputthemintoexecution."
Good hunting.
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