Gann's 28 Rules for Trading

W.D. Gann was not only a brilliant market analyst, but also a master of trading psychology. He understood that success in the market is not just about having a good system, but also about having the right mindset and discipline. To this end, he developed a set of 28 rules for trading that have stood the test of time. These rules are as relevant today as they were when he first wrote them, and they can help you achieve a new level of success in your trading.

The Importance of Trading Rules

Trading rules are essential for success in the market. They provide a framework for your trading, and they help you to stay disciplined and focused. Without rules, it is easy to get caught up in the emotions of the market and make impulsive decisions. By following a set of well-defined rules, you can remove the emotion from your trading and make more objective and rational decisions.

Gann's 28 Rules

Here is a summary of Gann's 28 rules for trading:

1. Never risk more than 10% of your capital on any one trade.
2. Always use stop-loss orders.
3. Never overtrade.
4. Never let a profit turn into a loss.
5. Don't trade against the trend.
6. When in doubt, get out.
7. Only trade active markets.
8. Distribute your risk equally among different markets.
9. Never limit your orders. Trade at the market.
10. Don't close your trades without a good reason.
11. Accumulate a surplus. After you have made a series of successful trades, put some money aside.
12. Never trade to scalp a profit.
13. Never average a loss.
14. Never get out of the market because you have lost patience or get in 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 long.
19. Never buy just because the price of a stock is low or sell just because the price is high.
20. Be careful about pyramiding at the wrong time.
21. Select the stocks that show strong uptrend to pyramid.
22. Never hedge a losing position.
23. Never change your position in the market without a good reason.
24. Avoid trading after long periods of success or failure.
25. Don't try to guess the top or the bottom.
26. Don't follow a blind man's advice.
27. Reduce trading after the first loss. Never increase.
28. Avoid getting in wrong and getting out wrong; getting in right and getting out wrong. This is making a double mistake.

The Formula for Risk Management

One of the most important of Gann's rules is to never risk more than 10% of your capital on any one trade. This is a fundamental principle of risk management, and it can be expressed with the following formula:

Position Size = (Total Capital * Risk Percentage) / (Entry Price - Stop-Loss Price)*

For example, if you have a $10,000 trading account and you are willing to risk 2% of your capital on a trade, and you want to buy a stock at $50 with a stop-loss at $48, your position size would be:

Position Size = ($10,000 * 0.02) / ($50 - $48) = 100 shares*

Actionable Examples

Here are a few actionable examples of how you can apply Gann's rules in your trading:

• Create a Trading Plan: Before you enter any trade, you should have a clear trading plan that outlines your entry price, your stop-loss price, and your profit target. This will help you to stay disciplined and avoid making emotional decisions.
• Use a Trading Journal: A trading journal is a great way to track your progress and identify areas where you can improve. By recording your trades, you can learn from your mistakes and become a more consistent and profitable trader.
• Practice Patience: Patience is a virtue in trading. Don't feel like you have to be in the market all the time. Wait for high-probability setups to emerge, and then execute your trades with confidence.

By following Gann's 28 rules for trading, you can develop the discipline and mindset of a professional trader. These timeless principles will help you to manage your risk, control your emotions, and achieve long-term success in the market.