William Gann Trading Rules Part 1

William Gann’s trading rules and tips came from William Delbert Gann, also known as W.D. Gann, a successful trader who developed a numerical tool known as the Gann angles. What is most striking about the tool he built is the set of rules he traded by. See also our guide to Gann Method in Forex.

These rules range from basic money-management principles to the important mental side of trading. What is truly surprising about them is that they were written in Gann’s books a hundred years ago, yet they still hold up as well today as they did back then.

This article covers some of Gann’s rules and tools. By the end, I hope you will have a strong grasp of the idea that although markets change over time, many trading rules remain timeless.

Before we get to the rules, a reminder, dear reader, that William Delbert Gann, the legendary trader, was one of the greats of technical analysis. He left behind many books and tools that are still in use today.

What are William Gann’s trading rules and tips?

Now let’s go through the rules in detail.

1. Always use stop-loss orders

Using a stop-loss is mandatory if you want to become a successful forex trader. Without one, you expose yourself to the risk of trading on emotion, which rarely ends well.

Trading without a stop-loss is like trying to drive a car with no brakes, so always make sure you use stop-loss orders every time you enter the market.

2. Overtrading

Your chances of trading well can improve considerably once you cut back on how often you trade.

What exactly does this mean?

It means that the more patient you become, the less you overtrade and the more you can focus.

3. Don’t fight the trend

This rule matters for two reasons:

• If the market has no clear trend, or you are not sure of the direction, stay away from it.
• Don’t trade against the trend. It can be tempting to try to catch the market’s highs or lows, but swimming against the current is far harder than swimming with it, so always trade with the market’s momentum, never against it.

See also: International currency market definition

4. When in doubt, stay out

If you are not sure, the best thing you can do is step aside. As a trader, there is nothing worse than having no plan for the current situation.

The main reason a trader stays in a losing position is the fear of taking the loss.

The problem is that when you find yourself in the zone of doubt, with no clear opportunity or clear direction, there is a 50/50 chance of making or losing money, so you should remove yourself from the market.

See also: Fast scalping strategy

5. Trade only active markets

This is extremely important but is often ignored by many traders. You cannot make money in a market that does not move. That goes without saying, yet I see many traders trying to trade sideways markets.

There is nothing wrong with trading a breakout from sideways price action, but trying to trade inside a sideways market is one of the fastest ways to lose money in the forex market.

Most of your profitable trades will always come from trending markets, and a strong trend can offer better reward potential.

See also: What are global stock indices?

6. Don’t close trades without a good reason

This is something every trader must master: the ability to control emotions in a way that lets you trade based on technical analysis. One way to keep your emotions in check when you feel the urge to close trades early is simply to ask yourself, “Why am I closing this position?” If your answer is anything other than a technical one, you are probably making a decision based on emotion.

7. Accept the loss

There are many reasons this is true, but the most important is the fact that a losing position is a sign that your analysis may not have been correct. By not accepting that, you increase your risk without getting prior confirmation from the market that you are in a good position.

8. Don’t leave the market because you lost patience

I often talk about patience and how important it is to your trading success. But patience is not only about waiting for the perfect trade setup; it also plays a crucial role in managing open positions.

The market is not on a schedule. It swings and flows according to the news and sentiment that affect it. This is why, as traders, we set profit targets but do not set time limits. The market needs time to see an open position through to the end, just as it needs time to form patterns. Both require patience.

9. Avoid taking small profits and large losses

William Delbert Gann had the right approach: he knew that becoming a consistently profitable trader means aiming for large gains and small losses.

10. Don’t cancel your stop-loss after the trade is executed

Why? Because once you enter the market, you now have something to lose, and you have already defined it based on your risk management. Reversing that decision after the trade is executed brings out the emotional side of your mind.

On the other hand, when you set your stop-loss before entering the market, you can make an unbiased decision about where to place it. This lets you stay disciplined through what the market does versus what you want it to do.

Frequently asked questions

What are the types of trading?

Here is some information on the main categories of trading:

• Day trading.
• Swing trading.
• Position trading.
• Fundamental trading.
• Technical trading.

What is Gann’s science?

Gann believed the market follows a natural time cycle. His theory was based on natural geometric shapes and ancient mathematics. Gann’s theory states that the market’s original patterns and angles can be used as an indicator of possible future price movements.

What is currency trading for beginners?

Forex trading is the process of speculating on currency prices for a potential profit. Currencies are traded in pairs, so by exchanging one currency for another, the trader speculates on whether one currency will rise or fall in value against the other.

How do I know when to buy a stock?

Historically, the period after any correction or crash has been a great time for investors to buy at competitive prices. If stock prices are oversold, investors can decide whether they are “on sale” and likely to rise in the future.

How do you become successful in trading?

To be a successful trader, follow these steps:

1. Always use a trading plan.
2. Treat trading like a business.
3. Use technology.
4. Protect your trading capital.
5. Study the markets.
6. Risk only what you can afford.
7. Develop a trading-strategy methodology.
8. Always use a stop-loss order.

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