Trader's World Magazine Article
TradersWorld Magazine - Summer 2024
A Trading Apprenticeship with W. D. Gann
W. D. Gann’s lessons on How to Trade are possibly some of his least-known but most important writings of Gann's that almost no one has even "read" let alone "studied" in the last 50 years. There are two primary reasons for this, first the inaccessibility of the presentation, and second the complete lack of charts or illustrations of any kind. Just have a look at the standard style of presentation for this 44-page work, and you will quickly understand why this is so:
“Decline followed, broke three bottoms made April 24, 27 and 30. We sell 200 shares more at 54¼. Decline continued to 48¼ where there were three bottoms March 26, 31 and April 1st. Rule says, buy the fourth time with one point stop. We covered 300 shares short at 48½ and bought 200 at 48½ with stop at 46¾, which was one point under bottom of March 26th and April 1st.”
Imagine 40 pages in that vein, with never a chart to be seen. If you’re eyes are already starting to glaze over, you are not alone. That’s how I felt every time I tried to study this lesson, which is an exposition of a Mechanical Method of trading that Gann developed for new students who came to him for instruction. It consists of 4 pages of rules, followed by 40 pages of examples – over 322 trades covering 16 years of the stock U.S. Steel from 1915 to 1931.
Yet something always bugged me about this lesson. Why give examples of trades over such a long period of time? Most of the trading lessons in the Commodities Course extend over a year or so, but rarely much longer. Gann’s Swing Trading Method is fairly straightforward – buy when a swing top is crossed, trail your stop beneath successive swing bottoms until one is broken, then reverse and go short, trailing your stop above each lower swing top.
Something didn’t add up – simple rules, many examples. Gann’s system often gets short shrift in trading books too, because following swing tops and bottoms in this manner can get you cut to ribbons in a sideways market. Surely Gann knew this – he was a trader, after all, and he says somewhere that he spent many years and thousands of dollars testing and developing the system in his own trading. Was there more to it than meets the eye? And how to tell without any charts?
Obtaining stock price data from 1915 to 1931 is no easy task. The U.S. Steel Corporation itself only had records from the 1950s, which it was happy to share. The New York Stock Exchange threw up its hands in resignation (or disgust!). Eventually, I found that copies of old copies of the New York Times newspaper are available online, and of course, stock prices were always printed in the daily papers. Transcribing them was a slow task, but all effort rapidly disappeared when I began to see what was there.
Take the little excerpt quoted above. It is from very early in the lesson. When I first read it, I was a little confused. “Buy the fourth time with a one-point stop.” Normally, we hear that Gann said be careful on the fourth time at the same level, because prices nearly always go through. I assumed that there must have been some clear support on the chart. Here is what it looks like:
U.S. Steel Daily 1915
Oh, now I see. The 3 bottoms he talked about at the end of March and beginning of April were three swing bottoms. So, this was more like a double bottom than 4 bottoms at the same level. And this shows that he regarded the congestion area at that time as giving support when price declined back into that zone. Gann talks a lot about 50% of ranges, highs and lows, time frames, and so on, so I wondered where 50% of the most recent range was. It is shown on the chart, not far above the low on 10 May.
But hang on! Where was the close on that day? It was back in the middle of the bar. This was a panic day, with the range of the bar almost $6 (which Gann calls 6 points). There isn’t the slightest hint of this in the text. I had simply assumed that price halted around the low level for a couple of bars and offered a buy signal. Gann has covered his shorts and gone long just 1/4 point (2 ticks back then, equivalent to $0.25 today) off the low. To take this trade, you would need to be watching the market during the session.
This was the first of many indications that Gann expects us to follow the market during the day in order to trade his Method. Nowadays, that’s not difficult; we have trading platforms on our notebook or smartphone, so we can check the market wherever we are and whatever we’re doing. In 1930 it was rather more difficult. There were no live charts. To get live prices you needed to watch the ticker tape, which printed out every transaction on the floor of the Exchange. Those were only available in brokers’ offices, which was not very convenient if you happened to have a day job or to live out of town. Gann was ahead of his time.
There are literally dozens of trades in this lesson where Gann reverses position as close to turns as in this example. For he always covers his shorts and goes long or sells out his longs and goes short. That is the basis of his Method, that you are in the market all the time – which means you never miss a big move.
But is this lesson no more than an historical curiosity? After all, we can’t trade U.S. Steel in 1915 anymore. Yet Gann himself was fond of quoting The Bible: “The thing that hath been, it is that which shall be…there is no new thing under the sun.” Here is a chart from the market I trade, the Australian Share Price Index, known as the SPI 200, from 2024:
Share Price Index Daily 2023-2024
The chart is unfortunately squashed, because I wanted to show the support where the low of 19 April 2024 sat on the old high from 6 February 2023. The two charts, one from 1915 and the other from 2024, on completely different markets, show a number of similarities. The trade indicated on U.S. Steel began from a top on 3 May 1915. This was 3 months from the low on 1 February, a time period that Gann said is always important to watch for a change in trend. The high in the SPI on 2 April 2024 was also 3 months from a previous turn, in this case a high on 2 January 2024. Although the 2 April high was a new extreme, it showed harmony with a previous range, but there isn’t room to show it here.
Price declined until 19 April, a period of 17 days. This was comparable to the 16-day decline from 2-18 January 2024. In 2023, there had been a minor high for a correction on 17 April, and in 2022, the high of the year was made on 20 April. Gann always says to watch anniversaries of previous turns. Similarly, the low on 10 May 1915 in U.S. Steel was 14 years from a panic low on 9 May 1901. While U.S. Steel made just over a 50% retracement of the previous advance on 10 May 1915, the SPI retraced 37.5%, still an important resistance level. It’s not clear on the chart, but the close on 19 April 2024 was in almost exactly the same position in the bar as the close in U.S. Steel on 10 May 1915.
The parallels don’t end there. After instructing us to cover shorts and go long right at the low on 10 May, Gann has this comment about the swing high two days later on 12 May: “The stock advanced to 55¼ on May 12th. If we were watching the resistance level of 54½ or 1/2 from 60¾ [3 May high] to 48¼ [10 May low], we would expect top and a reaction and could have sold out longs and gone short at 54½ with stop at 57½, but we waited for a change on the Overnight Chart.” Once again, a close study of the price action on the day adds much meaning.
On 12 May 1915, U.S. Steel opened at 54, pretty much where it had closed the previous day. It rallied past the 50% level but couldn’t sustain the gains and started to fall back. While Gann doesn’t state this explicitly, it’s a reasonable assumption that the place to go short is later in the day, when price declined back to the 50% level.
Fast forward to 24 April 2024, and we find the same type of bar on the SPI. The only difference is that price didn’t rally much past 50% of the decline from 2-19 April. The next chart shows the detail:
Share Price Index Daily April 2024
A careful study of the chart of U.S. Steel in May 1915, along with Gann’s instructions for how to trade the move, told us to cover shorts and go long in the SPI on 19 April 2024, when price rallied back above the old high price from 6 February 2023. This was 16 points above the intra-day low. It then told us to close out our longs on 24 April at the 50% level for a profit of around 210 points out of a 234-point swing.
Gann’s lesson on U.S. Steel is interesting for another reason, which again only becomes apparent when the trades are plotted on the chart. During the 16 years that he covered, the trades fall into three categories. Early on, the emphasis is on the swing chart (which he calls the Overnight Chart) for opening and closing trades. As time goes on, however, he begins to introduce a rule to reverse positions when the market rallies 3 points ($3) from a low or declines 3 points from a high. Since many swings on U.S. Steel made a greater range than this, he must have reasons for using the rule. And indeed, he does, but you can’t find them without the chart, and there is virtually no mention of them in the text.
By the time the lesson reaches 1927, we reach the period when Gann was writing The Tunnel Thru the Air, and then Wall Street Stock Selector in 1930. This lesson also was originally completed in June 1930, and later updated until March 1931. Hence, this would have been very fresh in his memory, and he may well have taken some of the trades himself. This shows in the trade commentary, and it is as though he got sick of writing trades for beginners and just gave us the trades as he would take them.
And so, during the Great Crash of 1929, trading a position of 5,000 shares, from 3 September to 13 November 1929, he demonstrates a profit of a little over $2 million. Some of the trades would have been impossible to take at the time, because volume on the crash days was so extreme that the “live” prices on the ticker tape were up to 3 hours delayed. But we could take the trades easily today – the harder part is the absolute confidence in your method of trading which Gann shows throughout this lesson.
I found this “beginners’ lesson” so valuable that I wrote it up as a book, How to Trade Like W. D. Gann, Part 1, published by Cosmological Economics. It was followed by a Part 2, where I analysed the other 5 known texts where Gann presents his mechanical system over the next 30 years.
However, recently, I also made a new experiment by walking through Gann’s 16 years of trades, one bar at a time, analyzing them as Gann would using his rules presented in Part 1 mentioned above and it provided me with deeper insights than I had had before through all my prior writing, and even presenting several seminars.
The PowerPoint version on video, which gives the added advantage of being able to step through every trade, one bar at a time, like you were living it day by day, to see how Gann’s rules should be applied in real-time. This was a revelation to me, and one of the most instructive experiences with Gann’s teaching I’ve yet had.
After going through the 16 years of trades day by day, the series grew to over 45 hours of video, and in association with CosmoEconomics, we are making this series available as a new trading program, the Gann Mentor Mastermind: Apprenticeship with W. D. Gann. This is about as close as we’ll ever get to sitting in a room with W. D. Gann and day by day having him teach us how to trade.
