W. D. Gann A Legend: by Les J. Clemens

Download as pdf or txt
Download as pdf or txt
You are on page 1of 20

W. D.

Gann A Legend
By Les J. Clemens

W
illiam Delben Gann was born on June 6, 1878, in Lufkin, Texas, to Sam H. and Susan
R. Gann, immigrants to Texas from the British Isles. Lufkin is midway between Houston
and Texarkana. This part of Texas is cotton country and Gann’s parents lived on a
Neches River bottom cotton ranch near Lufkin. He grew up around the cotton warehouses in
Angelina County where cotton was king. W. D. Gann was raised in a very strict Methodist church
family. His mother, a very religious person, encouraged him to read the Bible at a very early
age, and in fact, wanted him to become a minister. Gann was not sure he wanted to become
a minister, but studying the Bible was certainly easier than working in the cotton elds, as
was his father’s wish. He attended church every Sunday with his parents and as he listened
to the sermons found his interpretation of the Bible scriptures to differ from the minister’s.
In the Bible he discovered time cycles, repetition of important numbers, and references
to the wise men following the stars. Also, that it was written in veiled language that made
interpreting the real meaning difcult. Since Gann had a photographic memory, by age 21
he had nearly memorized the Bible.
During his school years Gann excelled in mathematics and was generally called as a gifted
mathematician. His tremendous appetite for knowledge and his open-minded attitude led him
into many different elds of study that eventually resulted in discoveries in the markets that
would otherwise have been overlooked. He completed high school in a time when most children
were only able to attend school through the third or fourth grade.
As a teenager, Gann liked to be called W. D., and he used these initials the rest of his
life. W. D. pestered his parents until they relented and signed a minor release form that
he needed to obtain a job. His rst job was that of a News Butcher on the passenger train
between Texarkana and Tyler, Texas. This job required him to be quick-witted, aggressive,
and able to deal with all kinds of people. During his teen years, he worked in the cotton
warehouses in Lufkin and Texarkana, Texas. While working in the cotton warehouse, he was
introduced to commodity trading.
In 1902, at age 24, W. D. Gann made his rst commodity trade in cotton, the market he
knew best. The small prot from that trade marked the beginning of what was to become one of
the most remarkable and legendary careers the speculative markets have ever known. Over the
next 53 years, Gann took over $50,000,000 from the markets. It has been reported by a man
who worked for Gann the last eight years of Gann’s life, that approximately 1/3 of the money
he made was for himself and the other 2/3 was for the accounts he supervised for clients. From
that very rst trade, it is believed Gann was using principles and techniques he continued using
throughout his trading career. The notations on some of his early charts substantiated this belief.
As time progressed, his trading methods were rened.
In 1906 W. D. went to Oklahoma City. He worked as a broker for a brokerage rm, trading
for himself while handling large accounts for clients. He studied the cause of success and failure

Traders World 462


in the speculation of other traders. He found that over 90% of traders who enter the markets
without knowledge and study usually lose in the end. Gann also lost a signicant amount of
money and admitted his trading was based on hope, greed, and fear. Later on, in his books and
courses, he cautioned all traders about these emotions.
Early on, Gann began to note the periodical recurrence of rise and fall in stocks and
commodities. This led him to conclude that natural law was the basis of market movements.
He then devoted ten years to the study of natural law as applicable to the speculative markets.
During that time he traveled to England, Egypt, and India to gain knowledge in ancient
mathematics and astrology. In the British Museum in England he conducted extensive research
on market cycles. In an Egyptian temple it is believed he found the basic construction of
what was to become known as his
Square of 9 Chart. After exhaustive research and investigation of the known sciences,
he discovered the Law of Vibration which enabled him to accurately determine the exact
prices to which stocks or commodities would trade within a given time, and that each stock or
commodity had its own rate of vibration.
At age 27, Gann was a well-known name in the Southwest. His views on the analysis of
cotton prices were so well respected that a Texarkana newspaper, The Daily Texarkanian,
ran a story on Gann’s cotton predictions.
In 1908, at age 30, Gann moved to New York and opened his own brokerage ofce at 18
Broadway. He began testing his theories and techniques in the market. On August 8, 1908,
he made one of his greatest mathematical discoveries for predicting the trend of stocks and
commodities. This was “The Master Time Factor.” Within a year, it became clear to others that
his success was based on more than just luck. No one researched time cycles as extensively
as Gann. His charts show the cycles with which he worked, went back to history’s beginning,
and bore no resemblance to other researcher’s time cycle studies.
In October 1909, Richard D. Wyckoff, Owner and Editor of The Ticker and Investment
Digest asked Gann for an interview to document his trading ability for one month. The interview
was granted, and Gann’s trades were monitored for 25 market days during the month of October
in the presence of a Ticker representative. At that time the markets also traded on Saturday.
Gann made 286 trades in various stocks, both long and short. There were 264 trades that
resulted in prots and 22 in losses. 92.3% of the trades were protable. The capital used doubled
ten times resulting in 1000% gain on his original investment during those 25 trading days. What
makes this even more phenomenal is that Gann did this with an average time between each
trade of about twenty minutes. In one day Gann made 16 trades in the same stock, 8 of which
were in either the top eighth or the bottom eighth of that particular swing. Such a performance is
unparalleled in the history of Wall Street. As stated by James R. Keene, the famous speculator of
that era, “The man who is right 6 times out of 10 will make his fortune.”
It seems a foregone conclusion that Gann was picking tops and bottoms with a high degree
of accuracy. At this point of time, in 1909, he was only 31 years of age, so whatever methods
he was using had already been discovered.
This biographer believes that after his sensational performance Gann regretted having
granted the interview, as it was stated m the printed article that he did not know the results
were to be published. When the article was printed in The Ticker Investment Digest, Gann was
besieged with people asking how he was able to pick tops and bottoms as he had demonstrated.
His only answer to them was he used The Law of Vibration to make all his calculations. At
this conjuncture there were only two choices: 1) to give away his secret discoveries and risk
destroying the markets, or 2) to detract from his method of picking tops and bottoms by writing

Traders World 463


books and courses about mechanical trading systems, the use of geometrical angles, the use
of Time and Price Charts, such as the Octagon Chart (Square of 9), Master 12 Chart (Square
of 144), Hexagon Chart (the cube), Square of 90, Square of 52, 360 Degree Circle Chart,
and many other trading techniques.
If Gann had continued trading using only his method of picking tops and bottoms, without
a doubt he would have become one of the wealthiest men in the world, and in so doing would
have attracted too much attention. He would have been asked too many questions by traders
and would have been compelled to explain. However, at certain times, he probably used his
method to advantage. Gann had a profound understanding of natural raw, so rather than place
himself in an embarrassing situation, he chose to trade using his mechanical systems and other
techniques he had developed. Also, having more capital than was required for a good living
was not important to him, as he was more interested in the knowledge possessed by ancient
civilizations and the occult sciences. Gann understood how the Laws of Nature controlled human
beings and, therefore, he understood the markets, because the markets are nothing more than
an expression of the actions of human beings.
The two previous paragraphs are my belief. You may agree or disagree, but before you
arrive at a conclusion, carefully study Gann’s 1909 trading demonstration. He made 286
trades in 25 days, which is 11 trades per day. To do this, you must pick the tops and bottoms
on a short intra-day time period.
If what I believe is true, it is very sad to think that a genius individual such as W. D.
Gann, had to disguise the truth throughout his life, with a smoke screen of many trading
methods and techniques.
In 1918 his ofce address in New York was 81 New Street and in the early 1920’s was at
49 Broadway. Over the years, Gann maintained several ofces in New York all located on Wall
Street with the address numbers of 78, 80, 82, 88, 91, 93 and 99.
At the height of Gann’s career, he employed 35 individuals who made charts of all kinds,
did analytical research at his direction, and performed many duties involved with his various
publications and services. The name of one of his businesses was W. D. Gann Scientic Service,
Inc., and the other, initiated in 1919, was W. D. Gann Research, Inc. The rms published the
following Supply and Demand Letters: Daily Stock Letter, Tri-Weekly Stock Letter, Weekly
Stock Letter, Daily Commodity Letter, Tri-Weekly Commodity Letter, and Weekly Commodity
Letter. Telegraph Service was all offered as follows: Daily Telegraph Service on Stocks, Daily
Telegraph Service on Cotton, Daily Telegraph Service on Grain, and Telegrams on important
Changes Only, on Stocks or Commodities. Published under Annual Forecasts were: Annual
Stock Forecast, Annual Cotton Forecast, Annual Grain Forecast, Annual Rubber Forecast,
Annual Coffee, Sugar and Cocoa Forecast. Supplements to all Forecasts were issued and
mailed on the rst of each month. Special Forecasts on stocks or other commodities were made
on request. Also offered were daily, weekly, monthly, quarterly, and swing charts on stocks
and commodities. Gann taught advanced courses of instruction entitled Master Forecasting
Method, at a cost of $2,500, and New Mechanical Method and Trend Indicator, at a cost of
$5,000, to those who want it for their own use and will not publish, sell, or teach it to others. It
is too valuable to be spread broadcaster. The cost of these courses and personal instruction in
today’s economics would be $25,000 to $50,000, or more.
As early as 1923, Gann offered a service entitled “The Busy-Man’s Service.” This was
a service for professional and businessmen where Gann supervised their trading accounts
by advising them what and when to buy and sell. In later years the name of this service was
changed to “Personal Service.” The cost of this service was on a 1 month, 3 months, 6 months,

Traders World 464


or annual basis, or on a Part-of-Prot Plan where the monthly fee was smaller and Gann
received 5% of the net prots. Under the Part-of-Prot Plan it was required that a minimum of
100 shares be traded. The clients were advised by telegram or letter.
An article in The Evening Telegram dated New York, Monday, March 5, 1923, used the
words “prophet” and “mathematical seer” to describe Gann. It also stated his followers declared
he was 85 % correct in his forecasts. He predicted the election of Wilson and Harding using
fortunate numbers and fortunate letters combined with cycles. He predicted the abdication of
the Kaiser and the end of the war to the exact date six months in advance. His predictions were
based on mathematics. He stated if he had the data he would use algebra and geometry to tell
exactly by the theory of cycles when a certain thing is going to occur again. He further stated
that there is no chance in nature, because mathematical principles of the highest order lie at the
foundation of all things. The article pointed out that Gann received calls every day from prominent
persons asking him to cast their horoscope. It also said he told politicians whether or not they
would be elected and solved problems for clergymen, bankers, and statesmen.
In another article in the Morning Telegraph, dated Sunday, December 17, 1922, the Financial
Editor, Arthur Andy, stated that “W. D. Gann had scored another astounding hit in his 1922 stock
forecast issued in December, 1921, I found his 1921 forecast so remarkable that I secured a
copy of his 1922 stock forecast to prove his claims for myself. And now, at the closing of the
current year of 1922, it is but justice to say I am more than amazed by the result of Mr. Gann’s
remarkable predictions based on pure science and mathematical calculations.”
W. D. and his wife, Sadie H. Gann, had one son and three daughters born to their marriage.
Their son, John L. Gann, was in partnership with his father for several years in the late 1930’s
and early 1940’s, operating under the rm name of W. D. Gann & Son, Inc. Apparently, the two
personalities were not always compatible, as their association was ended in the mid 1940’s. This
writer has been told one of their main differences concerned astrology, as John did not believe
astrology had any effect on market movements, or human behavior. This probably upset W. D.
as he knew well the effect of planetary motion on the markets and the individual. Following the
association with his father, John served as a broker for many years for the . rm Sulzbacher,
Granger & Co. in New York City. It is believed that John passed away in 1984.
For many years Gann maintained a home in Scarsdale, New York, which was, at the time,
the estate bedroom community for New York City. In an article that appeared in the May 26,
1933 New York Daily Investment News, it was reported that Gann left New York in the rst
1933 model Stinson Reliant airplane, piloted by Flinor Smith, a woman aviator, to conduct
an extensive tour of the country analyzing cotton, wheat, and tobacco crops, and business
conditions. The airplane was equipped with navigation instruments, radio receiving equipment
and extra-large fuel tanks that gave a ying range of 750 miles. It was powered with a Lycoming
engine and cruised at 135 miles per hour. Gann was the rst Wall Street advisor to use an
airplane for studying market conditions so he could advise clients much faster of changing
market conditions. During his trip he was a speaker to members of Kiwanis, Rotary, Chamber
of Commerce, and other business organizations in various larger cities throughout the
United States.
In 1935, Gann made an airplane trip to South America for studying crop conditions, and to
gather information on the increase and production of cotton in Peru, Chili, Argentina, and Brazil.
He logged 18,000 miles by air and another 1,000 miles by automobile.
In July of 1936 Gann purchased a specially built all metal airplane, which he named “The
Silver Star,” and used in making crop surveys. In July of 1939 he purchased a new Fairchild
airplane for the same purpose.

Traders World 465


Gann was a member of the Commodity Exchange, Inc. of New York, the New Orleans
Cotton Exchange, the Rubber Exchange of New York, the Royal Economic Society of London,
the American Economic Society, the Masonic LodRe, the Shrine, the Chicago Board of Trade,
and was a devout Christian in the Methodist Church.
Gann had a winter home in Miami, Florida, and in the 1940’s moved there on a full-time
basis. His ofce was at 820 S. W. 26th Road in Miami. While in Florida, he continued his
advisory services as well as teaching his commodity and stock market courses, either in person
or by mail. By the late 1940’s he had a recommended list of Books For Sale that included
the subjects of numerology, astrology, scientic, and miscellaneous. He was involved in real
estate holdings, and enjoyed large automobiles, especially Lincolns, which he purchased new
yearly. In 1954, after making several successful coffee and soybean trades, Gann purchased
a fast express cruising boat that he named “The Coffee Bean.” It was reported that Gann wore
the same type of suit throughout his life, and that his home was lled with items collected
in his world travels. He vacationed often in South America. But, in the opinion of his peers,
he did not live beyond his means.
W. D. Gann wrote some of the best books ever written on the stock and commodity markets.
The following is a list of the books written by him:

Speculation a Protable Profession


The Truth of the Stock Tape
The Tunnel Thru the Air
Truth of the Stock Tape/Stock Selector
Stock Trend Detector Scientic Stk Forecast
How to Make Prots Trading in Puts and Calls Face Facts America. Looking Ahead to 1950
45 Years in Wan Street
The Magic Word
How to Make Prots Trading in Commodities

Gann was a prolic writer. His style of writing was unique. Readers of his books considered
him to be a poor writer with a limited use of the English language. Not so! Upon a closer study
of his work, the reader will discover in time the Gann method of teaching. He will inspire the
reader to research everything from the origin of numbers to the musical scale and vibrations.
W. D. Gann, in my estimation, was a genius. He was born a Gemini with a high intellectual
capacity, and a dual personality that caused him to be both genial and obstinate. He was a
gifted mathematician, an expert chart reader, and had an extraordinary memory for gures.
Take away his science and he would beat the market on chart reading alone. One of Gann’s
most important technical tools was his charts and no one kept up as many as he did. Gann’s
charts encompassed 55 years, from 1900 to 1955. During this time thousands of daily, weekly,
monthly, quarterly, yearly, and other various charts, were made with care, each a work of art. He
believed charting was an art and if you understood everything the chart was showing, it would
aid in forecasting the next day, week, or month’s, price movements. Gann was a workaholic, at
times working 17 hours per day, 6 days per week. He was very demanding of those who worked
with and for him, and same effort from them that he himself put forth. He expected to issue
instructions only once and did not feel it should be necessary to repeat them.
Gann was deeply analytical and studied price actions of various stocks and commodities
back through the years. He spent nine months in the British Museum working day and night
researching stock and commodity prices and dates from 1820, and wheat prices and dates from

Traders World 466


1200. He also spent long hours and long days in the Astor Library in New York City researching
stock and commodity markets. He was a student of numbers, number theory, progressions, and
the progression of numbers. His trading system was based on natural law and mathematics.
Since time progresses as the earth rotates on its axis and in its order, and time is measured
by numbers and progression of numbers, and prices in their movement upward and downward
are also measured in numbers, it is understandable why Gann had an intense interest in
numbers, number theory, and mathematics. A keen understanding of natural laws and their
effect on mankind have a direct effect on the markets. The markets are only extensions or
reections of man’s actions.
In Gann’s time there were no calculators. He used a slide rule and the various master charts
he developed, such as the Square of 9, for his calculator. He kept an open mind to any trading
ideas to achieve perfection. When making his forecasts, he used many methods to arrive at
the time for a trend change, and all of them to conrmed he was correct. In his early trading he
made thousands of dollars. But, by listening to false rumors and other people’s ideas, he also
lost thousands of dollars. In 1913 and again in 1919, he lost small fortunes when the brokerage
rms he was trading with went bankrupt. One of these rms was Murray Mitchell and Company.
In those days the client’s funds were not protected by exchange regulations in case of a
failure, as they are today.
During this time he was also involved in two bank failures. Regardless of these losses
and misfortunes, he was always able to rely upon mathematical science to aid him in
making a financial comeback. This is why Gann states that knowledge of the market is
more important than money.
Today, people believe “times are different,” but Gann’s time saw its bull markets and panics
in the stock market bull markets and panics in the commodity market, wars, inationary periods,
depressions, bank closings, etc. In 1921 the rate of ination was 100%. Strikes were rampant,
jobs impossible to nd, and productivity at very tow levels. The Great Depression of 1929 to
1932 and the outright conscation of the citizen’s gold that was exchanged for printed money,
left deep scars on the country and it’s citizens. W. D. Gann was avidly against the New Deal and
Roosevelt’s creeping socialism. Therefore, to learn from other people’s past experiences, people
today should understand Gann’s famous quotation, “The future is but a repetition of the past, or
as the Bible says, the thing that hath been, it is that which shall be; and that which is done, is
that which shall be done; and there is no new thing under the Sun.”
Gann said, “The average man’s memory is too short. He only remembers what he wants to
remember or what suits his hopes and fears. He depends too much on others and does not think
for himself. Therefore, he should keep a record graph, or picture of past market movements
to remind him what has happened in the past can, and will, happen in the future. Panics will
come and bull markets will follow just as long as the world stands and they are just as sure as
the ebb and ow of the tides, because it is the nature of man to overdo everything. He goes
to the extreme when he gets hopeful and optimistic. When fear takes hold of him, he goes
to the extreme in the other direction.”
The following is taken from 45 Years in Wall Street and is very good advice and very true in
today’s world. “Every man takes out of life just exactly according to what he puts in. We reap just
what we sow. A man who pays with time and money for knowledge and continues to study and
never gets to the point where he thinks he knows all there is to know, but realizes that he can
still learn, is the man who will make a success in speculation or in investments. I am trying to
tell you the truth and give you the benet of over 45 years of operating in stocks and commodity
markets and point out to you the weak points that will prevent you from meeting with disaster.

Traders World 467


Speculation can be made a protable profession. Wall Street can be beaten and there is money
operating in commodities and the stock market if you follow the rules and always realize that
the unexpected can happen and be prepared for it.”
In How to Make Prots in Commodities Gann made the following comments regarding
knowledge as he believed knowledge is power. All who read this should heed and always
remember his advice. “The difference between success and failure in trading in commodities is
the difference between one man knowing and following xed rules and the other man guessing.
The man who guesses usually loses. Therefore, if you want to make a success and make prots,
your object must be to know more; study all the time; never think that you know it all. I have
been studying stocks and commodities for forty years, and I do not know it all yet. I expect to
continue to learn something every year as long as I live. Observations, and keen comparisons
of past market movements, will reveal what commodities are going to do in the future, because
the future is but a repetition of the past. Time spent in gaining knowledge is money in the
bank. You can lose all the money you may accumulate or that you may inherit - that is if you
have no knowledge of how to take care of it - but with knowledge you can take a small amount
of money and make more after time spent in gaining knowledge. A study of commodities
will return rich rewards.”
Sometime in 1947, Gann sold W. D. Gann Research, Inc. to C. C. Loosli, a San Francisco
attorney. He became disenchanted with the business and on February 14, 1948, W. D. Gann
Research, Inc. was transferred to Mr. Joseph L. Lederer of St. Louis, Missouri. The ofce for
W. D. Gann Research, Inc. was maintained at 82 Wall Street in New York until 1952. Then it
was moved to Scarsdale, New York, and in 1956 relocated to St. Louis, Missouri, where its only
business was that of investment adviser.
In 1950 in Miami, Florida, Gann and a partner, Ed Lambert, founded Lambert-Gann
Publishing Co. Ed Lambert was an architect who designed the InterState Highway System in
the greater Miami area Lambert Gann Publishing Co. published all Gann’s books and courses.
W. I). Gann passed away in the Methodist Hospital in Brooklyn, New York, on June 14, 1955,
at the age of 77. He was survived by his wife, Sadie, three daughters, and a son. That day
the world truly lost a market legend.
After Mr. Gann’s death in 1955, Ed Lambert continued to operate the business that included
a chart service of updated Gann style charts. He was not as active in promoting Gann’s writings
as when Gann was alive, so for the following twenty years Gann’s work became quite obscure.
In 1976 Bill and Nikki Jones of Pomeroy, Washington, purchased Lambert-Gann Publishing
Co. and the Gann copyrights. In the purchase were all of his personal research including
thousands of his charts, papers, books, and writings he had collected through fty years
of trading and research. There were also tables and miscellaneous ofce furniture used by
Gann. The largest Mayower moving van available was required to transport this purchase
to Pomeroy, Washington. Following Billy Jones’ death in September 1989, Nikki Jones
continues to operate Lambert Gann Publishing Co., carrying on the Gann tradition with the
sale of his books and courses.
In this biographer’s opinion, W. D. Gann was the greatest market researcher of all time. His
trading career spanned more than a half century. During that time he devoted his total life to
market research and trading. He researched every possible aspect of natural laws in conjunction
with variables of price and time in market movements. This study became an obsession
to nd the cause and effect of market uctuations, which he did. The trading techniques
Gann developed work the same today as they did when he used them. His library contained
volumes of books and manuscripts on harmonic waves, proportion, growth, gravity, electricity,

Traders World 468


nature, and natural phenomena. However, there were no books on open interest, volume,
stocks, or commodities.
The only books and courses on commodities and stocks were his own. He was a humble
man who stated, at age 75, that he had not learned all there was to know, and yet, he knew
more about the markets than any trader who ever lived. There is an important lesson to be
learned from the study of his life and his work. For those of you who have diligently studied his
writings, you will understand my statements. Hopefully, for those of you who are not familiar with
Gann, this writing will inspire you to begin. May the legend live on!

Les J. Clemens who wrote this article is a professional trader and researcher. He teaches
advanced Ut D. Gann seminars once each month. Les and his wife Sandy, operate a mail order
book business specializing in old, rare, stock and commodity astrology, mathematical, and
esoteric books. Contact them at POB 2356, Estes Park Colorado 80517.

Traders World 469


Order in the
Markets
By Danton S. Long

A
re mainstream methodologies the only way to nd order in s ~a Real World Market?
The delusion that one nds knowledge only through these “proven approaches” still
persists. Thank God for Capitalism and fresh ideas! From my research, I found that
the vast majority of these “accepted approaches” are either too subjective or unreliable
to develop a consistent trading plan. That is not to say that they never work, just that the
erroneous signals can be costly. I don’t know about you, but I need denite guidelines to
determine trade selection!
Figure 1 - I developed “The Price Point System” under the assumption that price value is
constant, time is not absolute but relative to the period of data acquisition and price movement
progresses naturally. In other words, from the xed price values I created a constant and innite
mathematical model for price movements to react within. I call it the xed price values Price
Points. The Price Points can be used as a stand alone system since price reacts within the Price
Point boundaries, or they can be used as a beautiful addition or clarier to other methodologies
such as Fibonacci, Gann, Elliott Wave, Planetary, etc.
Figure 2 - Now that you understand the basic premise of its development (P.P.S.), let us
examine the price movements within this mathematical model. All price movements (energy) are
a direct reection of contrary opinion buying and selling. To help put this concept in perspective
I envisioned the price behavior, “the dispersing of motion or energy that will continue until
either the driving force decreases, ceases to exist (lack of momentum of equilibrium), or
resistance is encountered (natural, technical or fundamental). The combined inuence will
either alter price direction completely (correction), slightly impede it (congestion), or have
no effect at all (penetration).”
Let’s review the concept briey before continuing. First, price is a “unit of measurement”
that measures the value or worth of Futures, Stocks or Indices. Prices react within the Price
Point Areas. Price fluctuations around these areas confirm trade entry or exit (it doesn’t

Traders World 470


matter how you look at it, a dollar is a dollar). Second, the natural progressions of price
will continue until either encountering resistance or the driving force ceases to exist. Third,
time is not absolute but relative to the period of data acquisition. In other words, each
respective level within the hierarchy (intraday, daily, weekly, monthly, etc.) creates its own
natural rhythmic progression.
Figure 3 - I’d like to focus attention on the natural rhythmic progressions determined from
a single price value (an isolated high or low). From this single price base we can project the
natural expansion rate of price outward using two distinct Fibonacci ratios. The ratios of .382
and .618 are extended sequentially outwards past the 2.618 expansion, by simply multiplying
each by 1.382 or 1.618 respectively.
Figure 4 - Essentially, we are creating a mathematically constant rippling wave of outward
resistance for time and price to react to. After the projected natural expansion points (isolated
high or low) have been determined, adjust them accordingly so that they conform within the
innite mathematical model. In other words, each projected expansion point is adjusted to
the immediate Price Point Area.
This is important and it is why most price projections fail in other systems. In order to project
forward to where price will go, we must rst have the correct starting point. The starting point for
all of my projections is always from the Price Point Area closest to the isolated high or low. I use
the number derived from my P.P.A. closest to the isolated high or low. I do not use the isolated
high or low itself. You can use the number of the isolated high or low if you want to and it will

Traders World 471


keep you in the ballpark, the question is, will it keep you in the game? By using my Price Point
numbers I can make a much more accurate prediction for future price.
OK, how do I make money from this? Well, we’ve covered the basics so lets get down
to business. First, we’re going to examine several charts to establish the natural progression
theory using a single price value. Second,we’ll project the probable top for the Dow Jones
Industrial Average.
Chart #1 - The isolated low of B was adjusted to conform to the mathematical model Price
Point Area (P.P.A.). The P.P.A. value or price was then multiplied by the ratio .618 to project the
rst natural expansion area against the trend. As you can see, the price traded sharply up to the
next P.P.A. before congesting. The point being, the adjusted expansion point (P.P.A.) provided
adequate support and resistance for further price activity.
Chart #2 - From the same single price value at B (P.P.A.) let’s examine the next natural
expansion area, 1.00. After price penetrated the high point of the peak bar’s peak that formed
at the .618 expansion, it then rallies sharply up to the projected natural expansion area (P.P.A.)
before correcting nicely to the .382 expansion area.
Chart #3 - Finally, using the same single price value at B (P.P.A.) project the next natural
expansion area, 1.382. Beginning at the correction area, price once again progresses to the next
expansion area. During this move however, price encounters resistance at the .618 expansion
point. Once the price penetrates that resistance zone it then becomes support for price, as it
continues onward to its projected destination at the 1.382 expansion. As you can see natural
progression areas provide adequate support or resistance to price. If you look closely at this chart
you will see that price reacted at both the 1.618 and 2.618 areas as well.
The rst three examples established the effectiveness of the progression theory using
ratios that were less than the 2.618 expanse. To project a probable Top for the Dow Jones
Industrial Average, we’ll use the ratios past the 2.618 expanse. These long term natural
expansion points establish a probable price grouping zone of future resistance when combined
with the short term expansion points. The combination conrms each projections validity, as
well as establishing a timing alliance.
Chart #4 - To extract a projected Dow Top target take the difference of this projection
range (3594.5 - 3310.6) = 283.9 (283.9/2)2 141.95 (141.95+3310.6) = 3452.55. In the week
of June 5, 1992 the Dow Jones formed an isolated high pattern at 3435.2. The immediate Price
Point Area was 3430.00. This formation occurred at a point that was exactly 17.35 points from
our average projected target area, 5.2 points from the immediate P.P.A. and 10.5 points from the
Dow Jones all-time low projection August 8, 1896. Hmmmrnm! Go gure! ! !
Further confirmation was given when the projected Fibonacci expansions of both
the 1987 and 1991 crashes confirmed this area as well. There are two other influences
worth mentioning. First, the retest of 3452.5 conrms momentum is weakening. Second,
a developing head and shoulders pattern formation. Is this the Dow Top??? I’m short and
watching price unfold! ! !
In conclusion, I’ve given you an exceptional tool to target both long and short term
termination points. Remember, when targeting natural projection points I never get locked into a
mentality that price has to reach a projected area.” I have shown my xed Price Point Areas on
the Dow charts. These areas never change. When the Dow trades at these levels in the future,
watch the action and reaction. The Price Point Areas for other levels on the Dow and all other
commodities are listed in my book, the Price Point System.

Danton S. Long is the author of the “Price Point System “

Traders World 472


Money Management
By Mike E. Riley

1) Have enough equity to assume at least 1 % risk of the value of one contract.

2) Since your money is at risk unless you will pay cash in full for all contracts so that you can
withstand at least a (3%) of the value of a contract uctuation against you. You must follow
the rules of money management and use stops to keep losses at a minimum and approach
trading as a business. Be realistic that business expenses are losses, so do not expect to
use leverage and to prot on each trade. Be capitalized to be able to make 15 trades per
year in anyone commodity as a track record with the possibility of 5 to 8 trades stopped out
in a row at worst with 1/3 risk vs. gain. Do not expect a few stopped trades to be an example
of how prots can be made in commodities. Your other choice is not to trade commodities
because of leverage or capital.

A) Any given day a market will have a trading range of 1% of the value of a contract, any
given week a 3% range. This is the nature of any market. The trading ranges we give are
rarely greater than we say for the next week or month. If markets move very little, then
do not expect large gains.
B) You cannot prot in the commodity markets unless your prots exceed your losses and
losses are inevitable because of leverage. Trading too many contracts or too high a value
contract for your equity may get you in trouble.
C) Learn to think in percentages % of your equity and market values, instead of actual dollars
or money. That takes the emotion out of trading.
D) One contract of T-Bonds prices at 100 is $1000 per 1.00 pts. Times 100 is equal to
$100,000 per contract therefore $25,000 equity is (4 to 1) leverage. A 1.00 pt. loss is $1000
but only 1% of the value of one contract and a 3% loss is 3.00 pts or $3000. Average
margin required is $3000.
E) Use a 4 or 5 to 1 leverage factor. Never more than 10 to 1 leverage.

3) Never risk mover 10% of your equity. We prefer 5% on any one position.

4) Enter only 3 to I risk-reward trades. Never assume more than 1/3 risk verses your gain
possibility because of slippage and commissions you cannot prot consistently.

5) Diversify into at least 3 different industries if you only trade with $5000 to $10,000, but only
trade one commodity in each industry.
A) If you trade with $25,000 or more, for the greatest diversication, trade at the agricultures
such as foods, bers, and nancials excluding the S&P, T-Bonds and currencies with 2 to 1
risk-reward or better for your greatest odds.

Mike Riley is editor of the Gann-Elliott Cycle Report Weekly Newsletter Hotline & Fax. He
can be reached at 903-463-2110.

Traders World 473


Secret to Success
By Ted Tesser, Ms,cpa

A
Ithough making money is important, it is only one half of the equation for a successful
career as a trader. An equally important component of this formula is how much of that
money you have left after the losses, expenses, and yes, “Read My Lips,” taxes. In my
opinion, the business plan and management of the trading business are the most signicant
aspects of a trader’s ultimate success and two of the most overlooked requirements.
Yes, a good trading system is a vital cog in this wheel. No doubt, you cannot manage your
money if you don’t make any. For this reason, it is necessary to implement a well thought out,
and balanced trading strategy. A successful trader must stick to a disciplined system with a
historical record of generating consistent prots. The drawdown should be commensurate with
this return, and tolerable by the available capital in the trader’s account. Trading a diversied
portfolio is vital to cutting this drawdown.
The system also must t the personality makeup of the trader. His or her tolerance for risk,
need to be correct (percent accuracy), and level of desired activity or time available for trading
(frequency of trades, and time frame being traded) are just as important as the system itself.
There is no such thing as a “one size ts all trading system.” The most protable system in
the world will still lose money if it is not traded the way it was designed; and a trader will not
consistently trade a system which does not suit his or her personality.
In addition, I have frequently seen traders conduct their business affairs, as would drunken
sailors on a ve day pass. As a professional who has been involved in trading from both sides
of the market (ie. as a trader, and also as a
CPA-investment tax specialist who services traders), I have observed professionals who
run their primary businesses prudently and conservatively, but seemingly throw all caution and
common sense to the wind when it comes to trading.
Trading is a business and should be treated as one. Prot margins must be calculated, as
well as cost of sales, risk/reward ratios, and return on investment net of taxes. The worst crime
a trader can make, is to have made money, but then to hand it right over to the government
because of a fundamental lack of knowledge of the tax laws and the strategies which can be
used advantageously. No area of the recent Tax Reform Act was impacted more than that of
the investor/trader, and Bill Clinton has no plan for immediate relief. Therefore it is vital for the
trader to be aware of what is available to him under current law.
One “secret” that the government has kept under wraps, is the ability of individuals to qualify
for Trader Status. Most people, even knowledgeable tax professionals, believe that unless
you are a professional market maker, operating from the oor of the exchange, you are an
investor. They are not aware that the Government will allow an intermediate classication called
Trader, which provides signicant nancial benets. This is especially true for those individuals
trading commodities for their own account.
While the market maker (broker dealer-oor trader) can deduct 100% of his expenses, and
treat his losses as ordinary, the lowly investor is limited to a deduction only after it exceeds
2% of Adjusted Gross Income. Furthermore, if AGI exceeds a certain level ($105,000 in
1993) there is a further exclusion to the tune of 3%. This means that although the investor
is taxed on 100% of income, the expenses directly incurred in earning that income, such as

Traders World 474


computer hardware and software, data services, advisory fees, commissions, margin interest,
etc. are only partially deductible.
A Trader, on the other hand, is an intermediate classication which has some of the benets
of both statuses. The trader, while allowed deduct 100% of his trading expenses on the Schedule
C (Form for Self Employed Individuals), he does not have to pay self employment tax on the
income, which is still treated as capital gain.
Recent Tax Court decisions, such as that of the Estate of Louis Yaeger vs. the Commissioner
has the IRS when it comes to relegating traders to second class tax status for trading their own
account. But the business must be set up properly. A small effort in this regard, with the proper
knowledge of how to do it, can well be worth the price in real dollar savings. Even those who failed
to recognize this and led their tax return without taking advantage of this strategy can amend it
to claim these benets for a period of time after the return was led.
The best tax planning begins at the beginning of the year, not on April 15th. A protable
trading system is vital, but a well thought out business plan, disciplined business management,
and prudent tax planning can often be the difference between a successful trading career
and one that is doomed to failure. After all, it is not only how much money you make that is
important, but rather, how much of it you keep!

Ted Tesser, MS, is a Certied Public Accountant, licensed by the State of New York. His
specialty is investment related taxation and he has recently completed a book entitled “The
Serious Investors Tax Survival guide, “ published by Traders ‘ Library He also is a full
time trader, trading systems developer, and has written a two part trading course entitled
“Systems For Success How To Create and Have a Protable Trading Business. N He can
be reached at 212-683-2950, and will send those readers who contact him a free booklet
entitled “Trading s A Business. “

Traders World 475


Trading the dow with Mercury
Mercury and the Dow
By Carol Mull

I
n his book, Stock and Commodity Traders’ Handbook of Trend Determination, George Bayer
lists eleven rules for trading stocks. One of the most often mentioned and the easiest to
use involves the planet Mercury.

Traders World 476


Traders World 477
Bayer refers to “Mercury’s halfway retrograde place,” and directs us “to nd the point when
Mercury turns retrograde and the place where it again moves direct.” We are told “to gure the
difference of these two places in the Zodiac, divide by two, and look in Raphael’s Ephemeris for
the date when halfway point is reached. This date is likely to be a bottom.”
If we apply this to the fall of 1992, we nd that Mercury turned retrograde on November
12, 1992 at 8’21' Sagittarius, and went forward again at 22’14' Scorpio on December 2. The
difference is 16’07'. One half of this is 8’3.5'. 22’14 Scorpio plus 8’3.5' is 0' 17.5' & Sagittanus,
and Mercury crossed that point on the weekend of November 21-22. If you will examine the
accompanying Exhibit 4, you will see that Monday, November 23, was indeed a down day,
but denitely not a turning point.
The accompanying Exhibit 1 lists the dates and locations that Mercury turned retrograde,
went forward, and was at the halfway position for the Period April 1 through November 30 ~1992.
Exhibit 2 lists major high and low turning points for the same period. Although Lam presenting
data here for an eight month period, have actually tracked Mercury halfway points through a three
year period and could nd little or no correlation with major high or low points.
What I do is to take Bayer’s research and carry it much farther. In the case of the Mercury
rule, I listed the daily speed of Mercury, ignoring whether it was direct or retrograde. l was
interested in whether Mercury was gaining speed or losing speed on a dwaily basis, and I did
not care whether it was moving forward or backward.
When I had done this, I noticed that when Mercury was gaining in speed, the market was
very likely to be an up-cycle, and when Mercury was losing speed, the market was most likely

Traders World 478


to be going down. (See accompanied exhibits~3 and 4.) Even when the market went down
during Mercury increasing periods, such as August 14 through September 10 or November 12
through November 23, the points lost were likely to be minor. It was a few days before Mercury
reached a standstill, market volume was very low and the Dow was likely to be down on the
day Mercury nally changed directions.
Finally, I ran all the major aspects to Mercury for a three year period on my computer. If
You will notice the accompanying Exhibit 4, you will see that the Dow will move up or down a
signicant number of points whenever there is a major Mercury aspect. Major aspects to other
planets also affect the Dow, but those to Mercury seem to be especially potent.
I actually use about twenty different factors in computing my daily market forecasts, but
Mercury’s velocity has become one of the more important. I suggest that Bayer’s work be used
as a springboard for even more research.

Carol Mull is an active trader and the editor/publisher of the seven-year-old newsletter, “The
Astro-lnvestor. “ She can be reached at Mull Publications, PO. 11133, Indianapolis, Indiana,
46201, phone 317-357-6855.

Traders World 479


Astrology &
Market Volatility
By Carl E. Whitney

F
inancial astrology today has two biases. The rst is toward cycles. At rst, it seems
reasonable to correlate the regular, predictable rhythms of the planets with earthly
phenomena. Many astrologers today work exclusively on correlating planetary cycles
with tops and bottoms in the markets.
However, the traditional practice of astrology, often now dismissed as “event-centered,” was
oriented toward one-time occurrences, not regularly occurring cycles. We might ask ourselves
if the traditional approach has any merit.
The second bias is toward predicting direction. This likewise makes good sense, as
everyone wants to know which way the market is headed. However, astrology may be better at
predicting volatility than direction. If we can predict periods of extreme volatility, this information
is of use to options traders, and especially professionals, who tend towards the short side, and
who can be wiped out by a drastic move in prices in either direction.
It has long been apparent that retrograde motion of Mercury and Mars bears on market
volatility. Retrogradation is a phenomenon in which the planets appear to slow down, stop,
and then move in the opposite direction.
In particular, the great crashes such as 1929, 1937, and 1987 tend to be associated with a
retrograde Mercury. Prices can also move sharply to the upside, as in October, 1974.
Retrograde Mars is correlated with less dramatic but more sustained price movement. The
plunge in late 1973 occurred while Mars was retrograde, and the nal stages of the slide were
accompanied by a retrograde Mercury. The spectacular gains in April, 1933, and the totally
unexpected rally of January, 1976, were associated with a retrograde Mars.
A further point about Mercury is the curious connection of its stations (the points in
the sky where the planet appears to stop in its tracks) with national disasters in the U. S.,
when those stations occur in a certain part of the sky. That part is the “Via Combusta,”
from 15 Libra to 15 Scorpio, which, according to one branch of astrology, is endowed with
peculiar properties.
The accompanying table lists several instances of major events that occurred near a station
of Mercury in the Via Combusta: among the events are two market crashes, the attack on
Pearl Harbor, and the Cuban Missile crisis, which, we learned recently, came within a hair’s
breadth of turning into all-out nuclear war.
A more thorough examination of stock market history between 1950 and 1991 reinforces
the notion that a Mercury station in the Via Combusta raises the probability of stock market
volatility. Of the 100 most volatile days in that period (with a change of at least 2.675% in the
S&P 500), 19 occurred within 5 trading days of such a station. That is, 19% of the volatile days
occurred in 2.4% of the time. (The 253 days near the stations made up 2.4% of the days in the
overall sample.) This is over seven times chance levels.

Traders World 480


Even excluding 1987, a day near such a station was four times as likely as any other day
to be volatile. Mercury stations in the Via Combusta accompanied the slide in November 1973
and the extreme volatility of October 1974, as well as the plunge of 6.6% on September 26,
1955—part of the “Heart Attack Market” caused by President Eisenhower’s stroke, and the worst
single day of the 1950’s, even including the panic that followed the outbreak of war in Korea
(which, by the way, occurred not long after a station of Mars).
Direction is a different story, as the average change for such periods nets out to just
about zero.
(The astute reader knows that volatile days run in batches, and may wonder how our
253-day sample compares to randomly chosen samples of 253 days congured in strings
of eleven consecutive days. The answer: of 100 such randomly chosen samples, none had
more volatile days than our sample, and only two had more volatile days than our sample
excluding the two 1987 stations.)
There are four Mercury stations in the Vla Combusta remaining in this century: November
15, 1993; October 9, 1994; October 29, 1994; and September 22, 1995. Option sellers
should square their positions during the two weeks surrounding these dates. Venturesome
investors can buy straddles (the simultaneous purchase of a put and a call option) and
hold them for eleven days.
(Calculations were based on eleven trading days, or, more precisely, eleven net changes:
ve before the station, the day of the station, and ve after. If the station fell on a non-trading
day, the prior trading day was taken as the base date. Volatility is the standard deviation of the
natural logarithms of the price changes.)

This article was written by Carl E. Whitney. He can be contacted at PO. Box 1072 Santa
Rosa, CA 95402

Traders World 481

You might also like