W.D. Gann, a legendary trader and market analyst, developed a set of 24 rules that have stood the test of time. These rules are designed to help traders manage risk, maintain discipline, and achieve consistent success in the markets. Here is a detailed overview of Gann's 24 never failing rules for trading:
- Amount of Capital to Use: Divide your capital into ten equal parts and never risk more than one-tenth of your capital on any one trade.
- Use Stop Loss Orders: Always protect your trade with a stop loss order 3 to 5 points away.
- Never Overtrade: Avoid violating your capital rule by overtrading.
- Never Let a Profit Run into a Loss: After you have a profit of three points or more, raise your stop loss order to ensure no loss of capital.
- Do Not Buck the Trend: Never buy or sell unless you are sure of the trend according to your charts.
- When in Doubt, Get Out: If you are unsure, exit the trade and avoid entering when in doubt.
- Trade Only in Active Stocks: Avoid slow, dead stocks and focus on active ones.
- Equal Distribution of Risk: Trade in four or five stocks if possible, and avoid tying up all your capital in one stock.
- Never Limit Your Orders: Trade at the market without fixing a buying or selling price.
- Don't Close Trades Without a Good Reason: Follow up with a stop loss order to protect your profits.
- Accumulate a Surplus: After successful trades, put some money into a surplus account for emergencies or times of panic.
- Never Buy Just to Get a Dividend: Avoid buying stocks solely for dividends.
- Never Average a Loss: This is one of the worst mistakes a trader can make.
- Never Get Out of the Market Due to Impatience: Avoid exiting the market because of impatience or entering because of anxiety.
- Avoid Taking Small Profits and Big Losses: Focus on taking larger profits and minimizing losses.
- Never Cancel a Stop Loss Order: Once placed, do not cancel your stop loss order.
- Avoid Getting In and Out of the Market Too Often: Maintain a disciplined approach to trading.
- Be Willing to Sell Short: Be as willing to sell short as you are to buy long, keeping with the trend to make money.
- Never Buy Just Because the Price is Low: Avoid buying stocks just because their price is low or selling short because the price is high.
- Be Careful About Pyramiding at the Wrong Time: Wait until the stock is very active and has crossed resistance levels before buying more.
- Select Stocks with Small Volume for Pyramiding: Choose stocks with a small volume of shares outstanding for pyramiding on the buying side.
- Never Hedge: If you are long on one stock and it starts to go down, do not sell another stock short to hedge it. Get out of the market, take your loss, and wait for another opportunity.
- Never Change Your Position Without a Good Reason: Make trades based on a definite plan and do not exit without a clear indication of a change in trend.
- Avoid Increasing Trading After Success: Do not increase your trading after a long period of success or profitable trades.
These rules emphasize the importance of risk management, discipline, and a strategic approach to trading. By following Gann's principles, traders can improve their chances of achieving consistent success in the markets.
Disclaimer: The information provided in this article is for educational purposes only and should not be construed as financial advice. The content is based on publicly available information and personal opinions. Readers are encouraged to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any financial losses or damages incurred as a result of following the information provided in this article.
