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Gann Trading Method
Gann's major contention was that certain laws governed not only the markets, but nature as well, and were universal in scope. The key to the future therefore lies in the past and this is the cornerstone of his trading method.
Human Nature Repeats Itself
If human nature repeats itself then by looking at the past we can make predictions about the future.
In the "Wall Street Stock Selector" Gann said.
"Just remember one thing, whatever has happened in the past in the stock market and Wall Street will happen again. Advances in bull markets will come in the future, and panics will come in the future, just as they have in the past. This is the working out of a natural law …" and, "It is action in one direction and reaction in the opposite direction. In order to make profits, you must learn to follow the trend and change when the trend changes."
He believed that human psychology was constant and that this manifested itself in repeatable price patterns.
Markets Are Influenced by Human Emotion
It is clear that human nature does repeat itself and a simple investment fact will illustrate this:
There is one statistic that has remained constant since the beginning of investment records -
The ratio of winners to losers has remained constant over time.
On reflection, this would seem a startling fact; despite the massive advance in communications and economic forecasting methods, the ratio remains the same.
The conclusion from the above is that the successful trading is dependant on something else. That something else is our trading psychology.
Trading Psychology and Its Influence
"We cannot escape it (emotion) In the future it will cause another panic in stocks. When it comes both traders and investors will sell stocks, as usual, after it is too late or in the latter stages of a bear market"
He was aware that human nature was constant and influenced the majority of traders.
"Therefore, in order to make a success the trader must act in a way to overcome the weak points that have caused the ruin of others"
Gann was aware that human behaviour repeats itself. Since price patterns reflect shifts in human psychology, one can assume that certain patterns, cycles and trends, will repeat themselves again. A simple formula reinforces this concept
Price + Time = Value They To Trading Success!
Gann believed that the following equation was the key to market movements
PRICE + TIME = VALUE
we all associate value with a certain price that we are accustomed to paying over time and Gann developed this concept.
Gann combined price and time to generate signals to trade the market. Gann believed crucial price movements happened when price and time converged. These points usually indicated an important trend change was imminent. If however, price and time were not coordinated, or did not converge, time always held priority over price.
Time was therefore considered by Gann as the ultimate indicator, because time governs all of nature.
Find out More & Your FREE Gann Information Pack
The above is only a brief introduction to the logic upon which ann based his trading methods. To find out more about how he actually studied and predicted market behaviour, you can request an exclusive FREE Information pack, which will introduce you to Gann's unique and profitable trading methods.
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