Even with the prevalence of high speed trading and other complex algorithmic systems, it is often the tried and true strategies that can help you be successful over the long haul. Many investors try to reinvent the wheel, but often the most successful traders today have patterned their trading styles after those of the great traders of the past.
W.D. Gann
“How to Make Profits in Commodities” (Lambert-Gann Publishing Company) by W.D. Gann was written in the 1940s and updated in the early 1950s. It’s an excellent textbook-type examination of trading methods used and discovered by William Delbert Gann, one of the most respected traders and market analysts ever.
The following are just some of the many important gleaned from Gann’s classic trading treatise.
• “You will always make the most money by following the main trend of the market, although to say that you must never trade against the trend means that you will miss a lot of intermediate moves which will make big profits. Your rule must be: When you are trading against the trend, wait until one of the rules gives you a definite indication of a buying or selling point at the bottom or top, where you can place close stop-loss orders.”
• “There are always two trends—a major trend and a minor trend. The minor trend is a reversal of the main trend, which lasts for a short period of time. When the main trend is down, it is much safer to sell…on short rallies at a point where the rules indicate…than it is to buy on (on an upside) reaction.
• “In a bull campaign, or advancing market, it is much safer to wait for minor (downside) reactions and buy when the rules indicate, that it is time to buy, than it is to sell short on rallies.”
• Because history does repeat, the price of (commodities) tells the story of the future, because it records the consensus of opinion throughout the country (and at present time, throughout the world).”
• Important support and resistance levels can be attained by a major price low from a major price high, and then dividing that trading range into eighths, for “retracements” of 12.5, 25, 37.5, 50, 62.5, 75, 87.5 and 100 percent. Gann says a 50% retracement is the most important retracement
• Dividing a major high and a major low’s price • range into thirds also provides key support and resistance levels—33 1/3% and 66 2/3% retracements.
• “Never buy just because the price of a commodity is too low, or sell short because the price is too high.
Jesse Livermore
In the early part of the 20th century, Jesse Livermore was the most successful (and most feared) stock trader on Wall Street. He predicted the stock market crash of 1907 and once made $3 million in a single day. In 1929, Livermore went short several stocks and made $100 million. He was blamed for the stock market crash that year, and solidified his nickname, “The Boy Plunger.” Livermore was also a successful commodities trader.
Here are some trading nuggets from Livermore that still ring true today.
• “All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.”
• “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”
• “Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.
• “It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”
• “Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”
• “When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.”
###
Related Reading…
Predicting the Market: Are The Experts Really Expert?
10 Things Every Trader Should Know Before Making a Trade
