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TOOLS OF THE TRADE

SUPERIORITY OF W. D. GANN'S TECHNIQUES














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A BREIF EXPLANATION OF WHY CYCLES AND FREQUENCIES  BEAT TECHINCAL ANALYSIS !
















Superiority

Jargon

Traders have jargon that they like to use as their lingo that appeals to them as being part of the business. Accuracy, profitability, drawdown, percent winners and losers, minimum capital required, discipline, profit to loss ratio are a few of the terms. I think it was the first year after I was introduced to trading, which was 1987, my brother and I attended a seminar in Orlando that was for one weekend at $1,000.00 a head. Jake Bernstein was one of the speakers. Jake asked us what would be the one characteristic of a trading method that you would ask for, if you could only ask for one. Where should you put your emphasis when acquiring or developing a trading method? Almost everyone not as wise as Jake seemed to think that that was a stupid question. Profitability, of course. But Jake said accuracy, and the reason is because it helps your discipline.

Accuracy

To describe the role that accuracy plays in helping your discipline, let's consider the following. Let's say that you have statistics on the ability of your trading method to win or lose, and they include the string of losses that it has seen in the past. You have become starry eyed by it's profitability figure and say to yourself that sitting through those losses is just part of the business. So you are willing to put yourself at risk to accept similar losses in order to get at those beautiful profit figures. Here goes; with real money, doing just that. You have some wins and losses and think you are doing fine until losses at some point stack on one another. You immediately question your own intellect in relying on that backtesting. Feel it. One loss. Two losses. Three. Many statistics that I look at have many more than that. Unless you have the discipline of a brass monkey, as one trader put it to me, you won't continue to follow your tradeplan into the loss trough. Even if you don't lose your discipline, you nearly will as it is tested. So what do we want that number one characteristic to be? The answer is high accuracy. It is so much easier to take that next trade after a loss if there is a very high probability that it will be a winner. Extremely high accuracy is what Gann trading can offer you.

Inputs

What are the inputs to most trading systems. What data do they require. Almost all of them will require price or time or both. Many will require volume, open interest, and other data less used such as statistics of supply and demand or commitment of traders' reports etc. It is almost unheard of that you would find a method that did not use price as one of it's inputs. Even if you are saying you are anchoring your use of time on an extreme (high or low) price, you have used price. The ability to have a method that is totally independent of price has much more to offer than it appears at first. There are the niceties that you don't have to keep track of the price data. Think of what that means. A bad tick won't mess you up. The data, well, which one. In futures, the March, June, September, or December contract? Or maybe even blend them to avoid the contract changes. Options, even worse; not only which expiration date do I trade, but which strike price, and where is the volume. All of these questions are avoided when you don't use price as one of your inputs. Stay with the contract with the most volume, use the index itself or the futures, or do a stistical analysis through history of them. Which index, the Dow, S&P, or other, or a blend. All of these questions are sidestepped when you can produce a 100% time based system. Think of how pleasing it would be to just call up a piece of software and have it produce the signals for you for any day that you ask for, without having to input any data first, or worry about the accuracy of the data. A 100% time based system is what Gann trading can offer you.

Predictability

Speaking of time, we have the past, present and future. We are interested in what has happened in the past and what is happening in the present to help us know what to do in the present and the future. Predictability. I have found that many systems will not be able to tell you much about the future. They will be able to tell you only what to do in the present. In other words, you have to wait for the present to get here before you get the answer. Said another way, they are only predicting the present, not the future. Let me ask you this. What is your method saying that you are supposed to do on this day next week, month, year, or ten, fifty, one hundred years hence? True, there is a statute of limitations on what is useful, but there is power in being able to predict far out. You can plan your moves much better. You have a handle on things that gives you an increased confidence level. Wouldn't you love to be able to tell the exact same signal that you would get with the same accuracy on any day, no matter what that day. This is one of the niceties of being totally independent of all data except time. A 100% predictable system is what Gann trading can offer you.

Speed

How fast do you want your signals to come? What is your timeframe reference of trading, or investing. Most systems that I have seen do not have the ability to give signals on more than one or a few time frames. The ones that are capable of all time frames are usually not as good as the ones that concentrate on one time frame. So if you want to daytrade, you can't use a system that gives you a signal once a month. What if you could have a system that was capable of giving signals on any time frame you desire, and the combination of how the time frames interact gave you other input. Traders have done this type of analysis before, and they have deemed it "top down trading". But I am talking about something a little more powerful than that. I am talking about a single method of analysis that can be used on any time frame of trading, and the interaction can be analyzed as well. A system that is totally independent of how often you want signals is what Gann trading can offer you.

Reliability

It is a "fact" well known in the trading business that most all trading systems will both go in and out of usefulness, and eventually not be useful at all any more --- for one reason or another. Most traders that have been at it very long have a shelf full of old books and trading systems that they have deemed obsolete, and rightfully so. There is a double whammy with that problem. You don't know, or can predict with very low accuracy, when the system will go sour, or loose it's usefulness. You also don't know how fast it will degrade. If a trader could be relieved of this worry, it would be worth a lot to him. He would know that his time and money investment would be safer and more secure, more a worthwhile investment, if he could know that there would be no surprises. The best surprise is no surprise. Staying power forever is what Gann trading can offer you.

Wonderment

Alluding to the reliability factor above, it is one thing to say that a system will do something, and it is another for it to do it. I mean, how many times have we been lied to? So the modern day trader attempts to cover this big bad problem by what he calls backtesting. He convinces himself that the prediction of the future is such a big task that he must use the best tools available to him and cover the rest of the problem of the "unknown" with money management. He thinks that backtesting is the best that he can do to assure him that what system he is using is what system he ought to be using. But what if there was a better method of checks and balances available that would intuitively tell him a best guess to his question "I wonder what this system is going to do next"? What if the common sense of the trader could easily see that certain checks and balances could not be chance, and therefore give him a warm fuzzy feeling that he is on the right track. This would give him extremely high confidence, would it not? And of course, confidence is great for our discipline, isn't it? Extremely high confidence is what Gann trading can offer you.

Results

I have tried to portray a system above that is reminiscent of the perfection or dreaming mentioned in the overview, and indicate that Gann trading can offer it. I think that it would be hard to find a trader out there that would not love to see even some of the abovc qualities in a system. But what if a system that had it all were possible. What if a 100% time based system could predict that the trend would be up on September 12 in the year 2010, and more specifically there would be tops and bottoms at 10:23top, 11:13bot, 12:01top, 12:18bot, etc. (These dates and times are all hypothetical). And what if you could also know that the countertrends were not tradeable at that level. What if you also knew that there would be a crash on December 16th of that year. Before you throw this away as pie in the sky, ask yourself and find out if W.D.Gann did it. On the flap inside the jacket on my "The Tunnel Through the Air" book, written by W.D.Gann, it states, "Gann wrote this book in 1927 yet he described the events leading up to and during World War II, with uncanny parrallels to the real thing. Many events, inventions, market panics and booms mentioned in this book actually came about in later years". The legend of W.D.Gann expands on that statement. Then look at the five minute chart on this website to view what my attempts at this technology has produced.

 

By David Barry
















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The basic tool for the manipulation of reality is the manipulation of words. If you can control the meaning of words, you can control the people who must use the words. Philip K. Dick