Gann Theory

The Master Time Trader

Most of us begin trading as a price trader unconsciously. However, there are increasingly more researches confirmed to us that time is a very important factor to consider for successful trading.

W. D. Gann even said that time is the most important factor among all things. It is true that we cannot complete our market analysis before we find out how the time cycle is working on the market. W. D. Gann was the one who applied his knowledge of time in the understanding of market cycle and achieved successful trading result. In fact, all his trading techniques were originated from the nature of time cycle. W. D. Gann can be honored the Great Trader of Time.

Who was W. D. Gann?

The Legendary financial Prophet in the Early Twenties

To most of the technical analysts and financial traders, the name, William Delbert Gann, is well known. Gann was one of the greatest traders in the early twenty centuries, who has extremely arcane trading analysis techniques and methods that based on ancient mathematics, geometry and astrology. Yet, as it was never unveiled explicitly, the theory of Gann is admired by most, but grasped by few. To understand Gann's theories, it is essential to know his life and living. W. D. Gann was born in an Irish family in Lufkin, Texas in the United States on 6 June 1878. His parents are devoted Christians with a strong Methodist background. W. D. Gann was himself a devoted Christian. He claimed that his market cycle theories were discovered from the Holy Bible.

The home country of Gann was a cotton land, the influence to the childhood of the great trader was understandable. With Gann was 24 in 1902, he made his first trade in cotton futures contract and enjoyed the profit from trading. The 53 years of trading hereafter, it was said that he had gained US$50 million from the market. The wealth of that scale compared with the purchasing power at his time was, in deed, very substantial.

In 1906, Gann moved to Ohakama with ambition to start up his career as broker and trader. His life and trading are with up and down. His advice after decades of trading were that if an investor enters the investment market without a grasp of knowledge, his chance to failure would be 90%. The reasons behind their failures are human emotions: hope, greed and fear are the enemies of success.

Knowledge is the way to win in the market. Starting from his early age, Gann had already realized that the natural law is the underlying driving force that moves the market. He claimed that he had spent 10 years in studying the relationship between natural law and the market. During these 10 years, he had traveled to England, Egypt and India for knowledge. When he was in England, he spent days and nights in the British Museum to study the financial markets for over a hundred years. During that time, he focused himself on ancient mathematics, geometry and astrology for inspiration and revealed their relationships with the financial markets. One of his important techniques, the Gann Cardinal Square, was said to be inspired from the structure of Egyptian and Indian temples.

After the long journey for knowledge, he concluded his findings that the financial markets are driven by the "Law of Vibration". The law once grasped, one can tell the future market time and price with high accuracy. Gann also claimed that the "Rate of Vibration" of individual stocks and futures contracts determine the up and down of their prices.

Unfortunately, the details of his theory are often kept in veil. Late comers are very difficult to grasp the essence of his techniques. In general, his theories are based on the followings: ancient mathematics, geometry, numerology and astrology.

In 1908, Gann moved to New York at the age of 30, where he started his brokerage and research business and serious tested his theories and trading techniques. In the same year, he developed his major technique "Master Time Factor" with success that made him famous on the Wall Street.

In October 1909, he was interviewed by Richard D. Wyckoff of the Ticker and Investment Digest, a then popular financial magazine in early twenties. The interview extended for an usual period of one month in order for the reporter to monitor his trading activities.

To the surprise of the reporter, Gann stroked a return of 1000% on his trading capital. He had made a total of 286 trades in 25 market days, 264 times won and 22 times lost. The profit rate was up to 92.3%. During that month, the average interval between trades was only 20 minutes. On one trading day, he made totally 16 trades, 8 out of them are the reversal points of the intra-day market fluctuation.

According to Gann's friend William Gilley, "One of the most astonishing calculations made by Mr. Gann was during last summer [1909] when he predicted that September Wheat would sell at $1.20. This meant that it must touch that figure before the end of the month of September. At twelve o'clock, Chicago time, on September 30th (the last day) the option was selling below $1.08, and it looked as though his prediction would not be fulfilled. Mr. Gann said, 'If it does not touch $1.20 by the close of the market it will prove that there is something wrong with my whole method of calculation. I do not care what the price is now, it must go there.' It is common history that September Wheat surprised the whole country by selling at $1.20 and no higher in the very last hour of trading, closing at that figure."

At the peak of his career, Gann founded two market research companies, W. D. Gann Scientific Service, Inc. and W. D. Gann Research Inc., and employed 35 people to produce technical charts and conduct market research. He published investment newsletters and made annual stock and commodity forecasts that attracted much attention from the investment community. Gann also hosted several investment and trading seminars. Gann tried to make his teaching secret and confined to few people, every student is not allowed to give the materials out to others. The fees for these seminars were US$2500 and sometimes US$5000, which enormous at his time. It may be equivalent to US$25,000 to US$50,000 nowadays!

His Methods

According to his followers, the accuracy of W. D. Gann's prediction was up to 85%. His predictions actually were not restricted to financial market, Gann also gave predictions on the election of US President and the beginning and ending of World War. Gann claimed that his every forecast was solely based on mathematical principles. With sufficient information, he could forecast the forthcoming events with his cycle theory based on ancient mathematics and geometry. In his mind, the nature of things had not changed, all of the events were based on mathematical principles.

What are the mathematical principles?

W. D. Gann said that the 360 degrees of a circle and the numbers from 1 to 9 were the origin of mathematics. In a circle, there may place a square and a triangle. Outside the circle, we may also construct a square and a triangle. These constructions are in fact the dimensions of the market.

W. D. Gann believed that the market reversal points (tops and bottoms) were related by the mathematical principles. There are no single market top or bottom cannot be explained by angles and support / resistance levels. In other words, if he was given the time and prices of the historical tops and bottoms of any market, he could utilize the mathematical and geometrical principles to predict futures market turning points. Why were these principles able to be applied to the market trends? W. D. Gann said that he had every proof from astrology and mathematics!

His Market Predictions

Interesting enough, W. D. Gann lived in the early Twenty Centuries while the economic life of the world was in total chaos. Gann experienced the first World War, the historic stock market crash in 1929, the great depression in the Thirties and the out-break of the World War II. In these years of frustration, conducting investment business was risky, not to mention market predictions.

Since the Twenties, W. D. Gann began to publish annual market forecast reports. These reports provided market forecasts for the whole year to come. It was nothing new by providing these types of service. The new things were that W. D. Gann actually depicted the market movement of the whole year by providing detailed time and prices of the market reversal points! His annual forecasts were in fact the road maps to wealth. He did not only forecast the market, he also provided forecasts of major social events. Although, he predictions might not be totally correct, his approach turned a new leaf in market forecasting.

Surprisingly, he accurately predicted the stock market crash of the century in 1929 to the date. In his annual forecast published on November 3, 1928, he explicitly predicted that September of 1929 would be the dangerous month. Stock prices would slump on "Black Friday". In fact, the Dow Jones Industrial Average toped out on September 3, 1929 at 386.10. Two months later, the Dow fell to below 200! The bear market brought to the western world the great depression and the Dow eventually bottomed out at only 40.56 in July 1932.

W. D. Gann's Writings

W. D. Gann passed away at 77 on June 14, 1955. He had numerous writings including:

w "W. D. Gann Stock Market Course"

w "W. D. Gann Commodity Market Course"

w "The Truth of the Stock Tape"

w "Wall Street Stock Selector"

w "Stock Trend Detector"

w "45 Years in Wall Street"

w "How to Make Profits Trading in Commodities"

w "How to Make Profits Trading in Puts and Calls"

w "Tunnel Thru' the Air"

w "The Magic Words"

Most of his writings are related to investment and trading. "Tunnel Thru' the Air" is however a love story. Gann claimed that the first time you read, it would be a book of love story. The second time you read, it would be a book of parables. The third time you read, it would be a book of market truths! The "Magic Words" is a book of religious writings.