45 Years In Wall Street

William D Gann


CHAPTER I



CHAPTER II RULES FOR TRADING IN STOCKS


The Time change is more important than reversal in price.

Rule 9. Buy on Higher Tops and Bottoms

Buy when the market is making higher Tops and higher Bottoms which shows that the main trend is up. Sell when the market is making lower Tops and lower Bottoms which indicates the main trend is down.

Rule 10. Change in Trend in Bull Market

A change in trend often occurs just before or just after holidays.

Rule 11. Safest Buying and Selling Points

It is always safest to buy stocks after a definite Change in Trend has been established.

Rule 12. Price Gains in Fast Moves

When the Movement on Average or individual stocks is 2 points or more per day, it is far above normal and does not last very long.

TWENTY-FOUR NEVER-FAILING RULES

1. Amount of capital to use: Divide your capital into 10 equal parts and never risk more than one-tenth of your capital on any one trade.
2. Use stop loss orders. Always protect a trade when you make it with a stop loss order 3 to 5 points away.
3. Never overtrade. This would be violating your capital rule.
4. Never let a profit run into a loss. After you once have a profit of 3 points or more, raise your stop loss order so that you will have no loss of capital.
5. Do not buck the trend. Never buy or sell if you are not sure of the trend according to your charts.
6. When in doubt, get out, and don't get in when in doubt.
7. Trade only in active stocks. Keep our of slow, dead ones.
8. Equal distribution of risk. Trade in 4 or 5 stocks, if possible. Avoid tying up all your capital in any one stock.
9. Never limit your orders or fix a buying or selling price. Trade at the market.
10. Don't close your orders without a good reason. Follow up with a stop loss order to protect your profits.
11. Accumulate a surplus. After you have made a series of successful trades, put some money into surplus account to be used only in emergency or in times of panic.
12. Never buy just to get a dividend.
13. Never average a loss. This is one of the worst mistakes a trader can make.
14. Never get our of the market just because you have lost patience or get into the market because you are anxious from waiting.
15. Avoid taking small profits and big losses.
16. Never cancel a stop loss order after you have placed it at the time you make a trade.
17. Avoid getting in and out of the market too often.
18. Be just as willing to sell short as you are to buy. Let your object be to keep with the trend and make money.
19. Never buy just because the price of a stock is low or sell short just because the price is high.
20. Be careful about pyramiding at the wrong time. Wait until the stock is very active and has crossed Resistance Levels before buying more and until it has broken out of the zone of distribution before selling more.
21. Select the stocks with small volume of shares outstanding to pyramiding one the buying side and the ones with the largest volume of stock outstanding to sell short.
22. Never hedge. If you are long of one stock and it starts to go down, do not sell another stock short to hedge it. Get out at the market; take your loss and wait for another opportunity.
23. Never change your position in the market without a good reason. When you make a trade, let it be for some good reason or according to some definite plan; then do not get out without a definite indication of a change in trend.
24. Avoid increasing your trading after a long period of success or a period a profitable trades.

My rules -

1. Do not hold triple leveraged ETFs (FAS/FAZ, TNA/TZA) overnight, unless there is enough profit margin, 2%.


SAFETY OF CAPITAL

You can always find new opportunities to make profits, so long as you have capital to operate with. Taking heavy risks in the beginning endangers your capital and impairs your judgment.

STOP LOSS ORDERS

An investor or trader will place a stop loss order and one time out of ten the stop will be caught at the exact top or bottom. After this he always remembers that and says, "If I place a stop loss order, they will just go down and catch it, or just go up and catch it and then the market will go the order way." So he does not use the stop loss order the next time. The trader forgets that nine times out of ten the stop loss order was right and would have prevented big losses by getting him out at a time when the market was going against him. The one time that the stop loss order gets you out wrong it makes up for it in the next nine times that it gets you out right. So don't fail to use a stop loss order.

CHANGING YOUR MIND

A wise man changes his mind; a fool never.

OVERTRADING

History repeats because of the weakness of human nature.









HOW TO ANSWER A MARGIN CALL

When you make a trade and put up the required margin at the time and later the stock goes against you and the broker calls for more margin, the thing to do in most cases is not to put up more margin, but sell out at the market or buy in in case you are short.

Nine times out of ten after a customer puts up margin the first time, he will hold on until there is a second margin call and a third and put up as long as he has money to put up and lose all of his capital on one trade. If the broker has to call you for margin, there is something wrong, and the best thing to do is to get out.

JOINT ACCOUNT

It is hard for one mind to work on the stock market and keep right, but it is much harder for two to agree and work in the market.

It is a bad rule for a man and his wife to have a joint account together. The action of getting in and out of the market should be up to one man, who should learn to act and act quickly and not be influenced by a partner in a speculative deal.

WHAT TRADERS DON'T WANT TO KNOW

The average trader does not want to hear a painful truth. They want something in accordance with what they hope for. When they buy a stock they believe all the news, rumors, views and lies that are bullish, but just let some report come out that is bad or let someone tell him something unfavorable about the stock he has bought and he refuses to believe it.

Real inside truth about losses in Wall Street is seldom ever told. Traders, big and little, always talk about their profits and brag about their successful trades, but keep quiet about their losses.

The new lamb should know that failing to place a stop loss order and overtrading have been the cause of over 90 per cent of the failures in Wall Street.

HUMAN ELEMENT THE GREATEST WEAKNESS

The investor and trader must work out his own salvation and blame himself and no one else for his losses, for unless he does, he will never be able to correct his weaknesses.

Always remember that it is your mistake that causes losses and not the action of the market or the manipulators.


CHAPTER III HOW TO SELECT INDEPENDENT MOVERS




Buying One Stock and Selling Another Short

There are many times when you can sell one stock short at a High Level and buy another stock that is selling at a Low Level and the prices of these stocks will come together and you will make profits on both.


CHAPTER IV PERCENTAGE OF HIGH AND LOW PRICES

One of the greatest discoveries I ever made was how to figure the percentage of high and low prices on the averages and individual stocks. The percentage of extreme high and low levels indicate future resistance levels.

The most important resistance level is 50% of any high or low price.


Second in importance is 100% on the lowest selling price on the average or individual stocks.

Third in importance is 25% of the Lowest price or Highest price.

Fourth in importance is 12.5% of the extreme Low or extreme High price.

Fifth in importance is 6.25% of the Highest price, but this is only to be used when the average or individual stocks are selling at very high levels.

Sixth in importance is 33.3% and 66.7%. These percentages should be calculated and watched for resistance next after 25% and after 50%.

Stocks Selling Below 50 Per Cent Level

It is very important when a stock breaks 50% or one-half between the extreme high and extreme low level. When it does not get support and holds at this level, it is in a very weak position and indicates a decline to 75% down or more between extreme high and extreme low.

Do not buy stocks after they get below this level until you see an indication of support based on all of the rules.

MARKET ACTION PROVES THE RULES


CHAPTER V TIME PERIODS OF SHORT DURATION CORRECT PRICES


Remember, when you do make a mistake or see that you are wrong, the way to correct it is to get out of the market immediately, or best of all when you make trade, place a Stop Loss Order for the protection of your capital.


CHAPTER VI TIME PERIODS FOR IMPORTANT SWINGS ON THE AVERAGES



CHAPTER VII DOW JONES 30 INDUSTRIAL AVERAGES 3-DAY CHART MOVES