Johannes Sundberg - Background and History

How Johannes Sundberg built his unique insight into Gann's ideas

AUTHOR'S INTRODUCTION - MY BACKGROUND AND JOURNEY

At the age of 15, I started becoming interested in equities and investments. The movie Wall Street was running at the cinemas and greed was good. Life was good as well. A couple of classmates and I decided to start an investment company called “Dementia Cogitationes” meaning “Insane Investments” in Latin. Little did I, at that time, respect the power and vibration of words, but with hindsight it is obvious that we could have chosen the name more wisely...

The stock market crash of 1987 struck, and we made losses on our holdings. The good thing that came out of this history was that a friend showed me a series of books about technical analysis. The first one consisted of basic chart patterns like head-and-shoulders, double-bottoms and simple indicators like moving averages. The second book was a description of the Elliott Wave theory and the third and last one was an obscure writing about time cycles. I was very fascinated with that last subject.

It was not, however, the easiest thing to be a technical analysis aficionado at that time. Some other classmates had heard that technical analysis “did not work” and the only worthwhile thing to do was fundamental analysis. They made me look like a fool and I did not have the courage to stand up for myself at that time. That might be a reason why I have intended to disclose the findings in this book for a long time.

Some years later, I started my university studies in business and economics. The courses on finance and investments were devastating. I could, at a theoretical level, understand the reasoning behind “efficient markets” and the “Capital Asset Pricing Model,” but at the same time I could feel in my heart that there was something so utterly wrong with it all.

For those of you not familiar with these academic subjects, they can be summarized as: “Nobody can make money in the market since so many smart brains try to outsmart each other there is no (legal) information advantage. The only clever thing to do is to buy index products (ETF, index funds) and hold since, in the long run, stocks will always outperform due to the high cost of actively managed funds.”

Yes, it is true that most actively managed funds underperform. But we have to remember that they have a lot of restrictions, and the goal of most managers is not super performance, but not losing your face. Risk is most often defined as “deviation from the benchmark index”, which means that a manager that deviates a lot from an index takes a lot of “risk”. It has nothing to do with how much money can be lost and these guys admit they do not have a clue about it.

I remember the late 90´s, the heyday of overpriced IT-stocks, where one portfolio manager claimed to be taking a lot of risk by “only” allocating 30% to the (hugely overvalued) L.M. Ericsson stock that made up close to 50% of the Swedish OMX-index at that time. The risk he took was not the risk of a correction in an overpriced stock, but instead the risk of missing the performance of the benchmark by underweighting this bubble stock. Do not underestimate the “Cover-Your-Ass” principle among the members of the field of investment professionals.

The problem for me is that you can´t pay your bills with "standard deviation" and "tracking error". There is no substitute for good absolute returns. When Ericsson topped out in 2000, it entered a bear market that erased more than 95 % of the value at the top. Are you really having low risk with 30% of such a stock in your portfolio?

Sadly, these academic theories dominate the investment community today and it has become the core of the business model of most banks and financial advisors, and it serves them very well. “Do not try to judge the market, just buy and hold and think long term while we earn our provisions steadily each month on your capital.”

As a portfolio manager at an institutional investor, I have participated in many conferences about “portfolio management” and “asset allocation”. These people admit that they do not have any idea about how to time the market, they believe it is impossible. Instead, they try to “diversify” to reduce the risk, which is a safe way to make sure you never make a lot of money because some part of the portfolio is always dragging. The classic allocation trick was to own both equities and bonds but after the financial crisis in 2007-2009, the bond market became more and more manipulated, and this free lunch diminished. Some recent academic studies prove that while bonds can be a good hedge when the stock market tanks, equities are not a good protection when the bond market implodes. Correlations are not statical.

Instead, the investment community invented new tools like “factor investing”, “smart beta ETFs”, and “tail risk hedges” which they evaluate in terms of variance, volatility, beta, covariance and other difficult words that make the general public actually believe these people are smart enough to take care of their savings. While they think no one can time the stock market, they believe that their measurements of “covariance” and such are stable. They are not! They are just guesstimates based on historical data, which the same people believe have no predictive value. Rather contradictory.

I refused to believe in that crap! You all know that if you bought stocks at the top of 1929 you had to wait until 1954, 25 years later, before the price levels had recovered. An investment made at the top of the bull run in 1966 needed some 20 years before it could give a decent return. Those who bought the high-flying Cisco stock in March 2000 are still deep in the red 21 years later.

It can be frustrating to see that the whole world seemed to have bought into the misconceptions of academia and how condescending these “scientists” can be towards the subject of technical analysis. But that is how life is. Humans are a social animal and you do not get promoted or popular by being the little boy that declares that “the emperor is naked”. It is better to run with the herd and try to fit in as smoothly as possible and learn the game.

I am aware that I sound a bit negative now, but there is a positive side to all of this. We can explore the teachings of W. D. Gann alone without much competition and that is something we should be grateful for!

To make a long story short, I refused to believe in these lies and wrote an academic thesis about how a simple trading range break out system could beat the market at the Helsinki Stock Exchange. It did! After graduation, I had an opportunity to work as a technical analyst in Stockholm and during that period stumbled upon W. D. Gann, which changed my view of the markets forever.

While I was in Stockholm, Mr. Ingmar Carlsson, who wrote a weekly technical analysis column in the business newspaper, “Dagens Industri”, arranged a course about Gann and time cycles. Mr. Carlsson showed several quotes of Gann’s and explained how tops and bottoms seems to occur on the same dates according to 30-, 45-, 60- and 90-day cycles in the market. He wove it together with Elliott Wave theory and it seemed to work quite well.

This was in the summer of 1997. The market had been in a strong bull run but we had discussed the possibility of a major top entering soon, as a clear five-wave pattern had developed. The supposed fourth wave had developed as a “wedge”, which was a schoolbook example of Elliott Wave Theory, as fourth waves are usually triangular in shape.

The market reached a top of August 27^th, 1997 and corrected. I remember that I was alone at work one Friday evening somewhere in September during the pullback. I remember the radio suddenly playing “Sympathy for the Devil” by the Rolling Stones, which gave me a real chill. It stood out so clearly compared to the glam pop that station used to play. I had the feeling something was wrong.

Mr. Carlsson had told me that a lower high at 30, 60 or 90 days (+/- 1 day) later would be a sell signal according to Gann. The market was very strong on October 8^th, but before the day was finished, it reversed abruptly and closed in the red (see chart below). All the conditions for a top and a decline was in place. I made sure to write a strong sell recommendation to the daily market letter that was sent out the following morning. My CIO was asking if I was sure about what I was doing, since the general sentiment was still quite optimistic. I explained the Gann theory and he accepted it and wanted to give us a try.

And the market tanked. Some Asian countries ran into trouble and their currencies imploded. The decline continued until the end of October. A lot of happy clients called me to thank me for saving their money. They actually followed the advice and dumped their stocks on October 9th. I felt fantastic!

A familiar pattern started to present itself. I wrote to my clients to be prepared to buy if the market finds support in the end of October since that would be a 60-day cycle from August 29^th which was the last bottom. And the market strongly reversed on October 28^th.

At that time, my boss was really nervous because he had seen a chart with a comparison between the 1997 market and the 1987 stock market crash. I guess many others following Gann's 10 year cycle were nervous too. If that pattern should continue, the decline would become much worse.If that pattern should continue, the decline would become much worse. But it did not. I advised my clients to buy carefully and add with a tight stop at the following test of the low. stic! My ego was huge! I was the hero of the market! I remember thinking: “This is so easy! Why haven´t more people thought about this?”

With hindsight, it was clear that I had stepped right into one of those traps that Mr. Gann presented in his text. He gives you something that works every now and then and it keeps you busy from searching for the real secret that was buried just underneath.

For some strange reason, this beginner’s luck development is usually the case when you find a lifelong interest or passion. In the beginning, you ride a wave of beginner’s luck, no matter if it is fly fishing, stock picking, picking up girls (or boys), or anything else. Enough luck to get you really hooked. Then reality emerges to the surface, and you realize that you need to put in a lot of work in order to succeed. But since you are already hooked, the work is more of a pleasurable passion than a burden.

After a while, I quit the analysis job in Stockholm and moved on to join a bank. It was a good job, but in that bank, “technical analysis” had the same reputation as witchcraft. Fundamental analysis was somewhat accepted but the “modern portfolio theory” was the real art which our CEO thought was similar to modern meteorology with all the supercomputer power compared to the “wise men” of the past who forecasted the weather on the basis of the look of Perch fins.

What kept me from going insane in this environment was that I had built a relationship with Mr. Ingmar Carlsson, and he invited me to write a weekly column in his technical analysis market letter. I felt that I was still connected to what was really important while the bank job gave me the bread and butter.

Following the same mix of Elliott waves and the 30-, 60- and 90-day cycle, a friend and I made a lot of money trading puts in the bear market of 1998.  Then the market reversed strongly, a new “Gann date” was coming. I bought a new set of puts and lost it all. It was a hard but necessary experience that brought me back to reality.

I realized that there must be something more than Elliott waves and reoccurring Gann dates. I could really feel it, but I could not find it. I started to study every book that was written by W. D. Gann and about him. I read the books of so-called Gann experts, but most of them had some ideas that looked nice but were very hard to put into practical use. Too subjective, too many options and variables, too inconsistent. Too much after the fact analysis. I later realized that these authors are probably so called “armchair traders”. They love to read and write about it, but they do not use it in practice. There were some exceptions like Michael Jenkins in New York. He used a veiled language too, but it was at least obvious that he was a real trader, and he gave me a lot of inspiration.

Something that came back to me again and again were squares and square-roots. But I could not figure out: “How are you really supposed to use squares?” I tried to see if a stock that topped at say $50 would turn around 50-days, 50-weeks and 50-months later. I even held courses down in Spain for the clients of Mr. Ingmar Carlsson at the “Gann Advanced Level” showing these tricks. But when I started to put it into practice using real money, I realized that I could not fool myself anymore. The hit rate of this method was far too inconsistent. Sure, I got a lot of nice examples that could fill a book or make a course attendee convinced that they had really learned something valuable. But I knew that there had to be something else behind Mr. Gann’s success. I just had to find it.

At that time, some experts dared to claim that Gann was actually an astrologer. I started to read about the subject, but it felt so weird, I could not accept it. I could not find any reliable astro based method that was ready to put into practical work either. I bought more courses and books and started to hang out on Internet forums and was frustratingly often met with the message: “I know the truth, but it is not my intention to do the work for you, I will just point you in the right direction”. If you pay several thousands of dollars for a course you expect to actually learn something and not just get a diffuse pointer from someone who claims, but cannot prove, to be a Gann expert.

I even started to read Gann’s religious book The Magic Word and I kind of liked it. Clearly Mr. Gann was a humble, spiritual man, despite his tremendous success in the mundane world. I noticed that the way to pray is to be thankful as if the desired result had already happened. Never doubt, always have faith. That reminded me of my adventures in affirmations and creative visualizations some years earlier. I realized that I had to quit hanging out on those Internet forums and buying all those expensive courses.

If the truth were to be found, I had to do it on my own. I started to visualize and make affirmations: “I have cracked the Gann code, I´ve found the secret, I understand it all and I feel so great”, “It is really awesome to finally have cracked the code of W.D. Gann”, with a feeling of genuine excitement.

I thought a lot about what I had read, but my intellectual reasoning did not bring me anywhere. One morning, I was standing in the shower, preparing to go to work, with a blank mind still not really awake. Suddenly, I just felt a sudden flash, an idea: “Why do you not try to apply the squares this way?” I felt overwhelmed, it was a powerful experience! I had to rush to work, but the first thing I did when I got home again was to turn on my computer and start my technical analysis and astro programs to try this new idea.

And it worked! Based on the price level of the Dow Jones Industrials and the positions of the stars, I was able to predict turning points in the future, years in advance, down to the exact day! I immediately knew that this must have been the real method that Gann had disguised so elegantly. And I had discovered it on my own (or with the help of some angel that whispered it into my ear that morning in the shower, I do not know for certain). That was one of my top-5 experiences in life! Now you might think that I have had an uninteresting life, but I can assure I have not.

I tried the method on other tops and bottoms as well and it still worked beautifully! It was not just the usual hit or miss kind of thing. Then I went into a state of shock! I simply could not handle it and the possible consequences. I got scared. When I look back, I see that I was not ready to handle it. There were things in my personal development that I still had to work on. I guess I did not feel worthy to possess such a treasure at that time.

After a couple of years, I started to do research again, continued for a couple of months, and then shut down the shop again. It continued this way for many years. I persuaded myself that I had more important things to take care of first… One reason for these gaps in the process may be that I needed time off to “unlearn” everything I´d previously learned.

If you really want to learn Gann, you have to have an extremely open mind. A couple of years ago, I realized that it was probably one of my life missions to explore this knowledge. I had, at that point in life, found the “true me”, “reconnected with my “soul”, and suddenly everything started to run more smoothly. That is why I am now ready to publish my work.

If you too have spent thousands of dollars on Gann books, software and courses, you might be suspicious and now expect me to write something like: “It is not my intention to reveal my secret and do the work for you.” However, that is precisely what I am going to do!

You have paid a substantial amount of money for this book, and you have the right to receive something valuable in return. Since that morning in the shower, I have refined and expanded the method into to several different strategies that all are based upon “universal laws and the strict rules of mathematics”. But there is still a lot of work you need to do on your own before you become a money-making machine.

You have to backtest and prove everything to be working. There might be some “vibrations” of your favorite trading asset that you need to discover by yourself. We will discuss how to do it, but you have to develop a strategy, set up and follow a plan, and that requires a lot of patience and discipline. Even if you are soon able to forecast a turning point to the exact day, years into the future, there are still some open questions.

Where do I put my stop-loss? How much can I risk? What do I do after I have entered my position? When do I take the profits? Should I take some sure profits now or wait for more, risking to lose all the profits? What if I am wrong? Those questions might sound easy, but in my opinion, it is much easier to make an accurate forecast. I will share how I reason about these tactics, but you have to find your own style that you feel comfortable with. Make sure to “know thyself” before you start to trade.

Why do I choose to disclose these valuable secrets? Well, I do not give them away for free, there is, after all, a substantial price for this book. Even if you will soon learn the secrets of Gann, there is still a lot of work required of you in order to apply them to your actual trading. You need to copy what I have done and then apply it to those assets that you want to trade. You will have to work through a lot of historical data, and it all takes time and energy. You need both discipline and patience. You need to adapt it in a way that suits you.

Another factor that motivates me to write a book is the universal spiritual law that says, “In order to learn, you have to start teaching what you have already learnt”. If we keep everything to ourselves, we stop the natural flow of knowledge. This is a way for me to step up my personal journey in this fascinating realm.

I already have proof that this law is true. There are many pieces in the book that I did not intend to write when I began the project. Those are new discoveries that I made while writing this book and that would otherwise never have been discovered.

In the “Ticker interview” there is a section that says:

“Many ask the question, ‘If Mr. Gann can forecast the markets accurately, why does he sell his services or write market letters?’ He has answered the question before, that he finds pleasure in giving his knowledge to help others who need help:

“Money is not everything in life”.

That applies to me too...

Mr. Gann wrote that “the public” was not yet ready to know the truth. Is it now? I feel like the timing is better. During the last decennium, more and more books and software that incorporate astro have been developed, and people are more open minded.

I have passed 40 and do not care so much about what people think anymore, so I do not mind if someone sees me as a shaman of the markets.

Will a widespread use of the secret destroy the markets? I think it will take a long time before this teaching is generally accepted. The Governments and Central Banks have destroyed the free markets anyway by destroying the value of the dollar and by applying yield curve control.

I also feel that capitalism in its current form will not be the system of the future if we are going to survive. If the economic system does not change, there might not be any markets either in a couple of 100’s of years since there will be no conditions for life. We need a system that builds on love, not fear, for each other. Then everything will be fine again.

As a part of this development, I think it is important that people realize that there are some forces in the Universe that are far more powerful than the chairman of the Federal Reserve or the CEO of J. P. Morgan when it comes to what really causes the markets to move. No wonder our ancestors associated the planets with gods, archangels and other powerful deities.

It is time for man to come out of his bubble of hubris and become humble again. Is the tale of Atlantis really a tale or a prophecy of a flooded Earth due to the melting of the ice at the poles? Man needs to understand that the system is perfect, let go of control, and know that he is loved by somebody up there.

Welcome on board, I hope you enjoy the journey!

Johannes Sundberg

November 2021

Scandinavia