W.D. Gann's Master Stock Market Course
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Overview:
This discussion outlines the core principles and techniques taught in W.D. Gann's Master Stock Market Course. Gann emphasizes the use of mathematics, geometry, time cycles, and volume analysis to predict market movements and make profitable trades. The document highlights specific strategies, chart analysis methods, and rules for determining market trends. Throughout, Gann emphasizes the need for knowledge, discipline, and a reliance on mathematical indications rather than guessing.
Key Themes and Ideas:
Mathematics as the Foundation:
Gann asserts that mathematics is the only exact science and the key to understanding market behavior. "Mathematics is the only exact science. All power under heaven and on earth is given unto the man who masters the simple science of mathematics."
He believes that market movements are governed by mathematical laws and cycles. "There is no top and bottom price which cannot be determined by mathematics. Every market movement is the result of a Cause and when once you determine the Cause, it is easy enough to know why the Effect is as it is."
He references Pythagoras's belief in the primacy of numbers, suggesting that market analysis should be rooted in numerical relationships. "Pythagoras...said: “Before God was numbers.”"
Geometric Angles and Chart Analysis:
Gann relies heavily on geometric angles, particularly the 45-degree angle, to identify support and resistance levels, and to forecast trend changes. "As you look at this Square, it should be easy for you to tell with your eye where the strongest support point is or resistance point is. It is at the center where all the angles cross."
He explains how to square price ranges with time, using angles to project future price movements. "The squaring of Price with Time means an equal number of points up or down balancing an equal number of time periods – either days, weeks or months."
Squaring the range involves squaring the high, the low, and the difference between them with time. "THREE WAYS TO SQUARE TIME AND PRICE: We can square the Range, that is, the number of points from extreme low to extreme high, with Time – then square the extreme low point with Time – and square the extreme high point with Time."
Time Cycles:
Gann stresses the importance of understanding and using time cycles to predict market turning points. "The next important major cycle is 30 years, which is caused by the planet Saturn...The most important cycle of all is the 20-year cycle."
He identifies various cycles, including 1-year, 3-year, 5-year, 10-year, 20-year, 30-year and 50-year cycles, each influencing market fluctuations. "The minor cycles are 3 years and 6 years. The smallest cycle is 1 year, which will often show a change in the 10th or 11th month."
He advocates watching for changes in trend at specific intervals from tops and bottoms, such as 30, 60, 90, 120, 180, 270, and 330 days. "It is very important to watch for a change in trend 30 days from the last top or bottom. Then watch for changes 60, 90, 120 days from tops or bottoms."
Volume Analysis:
Gann considers volume of sales as a crucial indicator of market strength and direction. "The VOLUME OF SALES is the real driving power behind the market and shows whether Supply or Demand is increasing or decreasing."
He notes that increased volume often accompanies advances from low levels and declines from high levels. "As a general rule, when a change in trend takes place of importance, the volume of sales will show it. The volume of sales usually increases when a stock starts to advance from low levels or from dullness..."
Trading Rules and Strategies:
Stop-Loss Orders: Gann is a strong advocate for using stop-loss orders to limit potential losses. "Remember, it is safe to buy when a stock reacts to old tops the first, second, or third time, but when it declines to the same level the fourth time, it is dangerous to buy as it nearly always goes lower."
Buying Points: He identifies old bottoms and old tops as potential buying points, using stop-loss orders for protection. "When a stock declines to an old bottom or to an old top, it is always a buying point with a stop loss order."
Breakaway Points: He highlights breakaway points in bull and bear markets, indicating levels where a stock is likely to experience a significant price movement.
Chart Formations: Gann emphasizes the importance of recognizing chart patterns (single "V", "U", double, triple, 4-bottom) to identify buying and selling opportunities. "Study the different types of bottom formations -- Sharp, double, triple, flat and ascending bottoms."
Individual Stock Analysis: He insists that each stock must be analyzed individually, regardless of the performance of other stocks or the overall market. "Second, consider each individual stock and determine its trend from its position according to distance in time from bottom or top...Each stock works out its 5, 10, 20, 30, 50 and 60-year cycles from its own bottoms and tops..."
Put and Call Options: Gann details strategies for using Put and Call options. "When you buy a PUT and a CALL on the same Stock it is called a SPREAD."
Importance of Knowledge and Discipline:
Gann underscores that knowledge and diligent study are essential for success in speculation. "One of the vital and most important factors for making a success in speculation or anything else is KNOWLEDGE...put it down as a rule that hard work in acquiring knowledge will surely bring success in speculation or business."
He urges traders to trade only on mathematical indications and avoid guessing. "After you have thoroughly mastered all of the lessons, be sure you are right before you make a trade. Never guess. Trade on mathematical indications only."
Master Chart (Square of 12):
Gann introduces the "Master Chart" or "Square of 12" (12x12) as a tool applicable to time, space, and volume analysis. "The MASTER CHART is the Square of "12" or 12 x 12, making the first square end at 144...This chart may be used and applies to anything – TIME, SPACE OR VOLUME, the number of points up or down; days, weeks, months and years."
He points out important price levels within the square that can act as resistance points. "The numbers at the tops and bottoms of the squares are important prices for important tops and bottoms to be made because they are opposition numbers and are equal to the half-way point."
Practical Examples and Applications:
The document provides numerous examples of Gann's trading methods, including:
Detailed trade logs from 1918 to 1930, showing entry and exit points, stop-loss orders, and profits/losses.
Examples of how to identify buying and selling points based on chart formations and volume analysis.
Specific instances of using time cycles to predict market turning points.
Key Considerations:
Complexity: Gann's methods are complex and require a significant investment of time and effort to master.
Subjectivity: While Gann emphasizes mathematics, the application of his techniques can still involve a degree of subjective interpretation.
Historical Context: The course was developed in the early to mid-20th century, and some of the specific examples and market conditions may not be directly applicable to today's markets.
Conclusion:
W.D. Gann's Master Stock Market Course presents a comprehensive and sophisticated approach to market analysis and trading, emphasizing the importance of mathematics, geometry, time cycles, and volume. While the methods are complex, they offer a structured framework for understanding market behavior and identifying potential trading opportunities. Gann’s work requires rigorous study and application to be effectively utilized.
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