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W.D. Gann Trading Methods - Genius Trader or Overrated Guru

W.D. Gann is one of the most famous traders of all time, and has a huge devoted following - however the fact is, Gann never made the huge profits many of his disciples claim.

He did not have a success rate of 90%, as is often claimed - the logic his methods are based upon are unsound, and his predictive methods don�t predict - they leave everything to subjective opinion!

Let�s examine his theories of investment in more detail and see.

Let�s look at some common myths about how great a trader Gann actually was:

Many sources quote Gann�s trading profits at $50 million dollars, however this is not true.

An interview that Alexander Elder had with his son tells the truth.

Firstly, his son confirmed that when his father died in the 1950s his estate was valued at just $100,000 - and that included his house.

Secondly, his son confirmed that Gann was unable to make enough money from trading, and therefore supplemented his income by writing and selling courses.

W.D. Gann�s Predictions

Many sources quote he had a success rate in all his trades of over 90% - again not true. We can easily deduce this from the value of his estate.

If he could make money trading and had a 90% success rate, he would have made hundreds of millions in his trading career - and he clearly did not - that�s why he had to sell books and courses.

The only evidence of a 90% success rate came from a small number of trades - and was not representative of them all.

Gann�s Methods are Predictive

Gann came to the conclusion that all natural phenomena are cyclical - including financial markets. This is true, but this is an obvious statement - we all know we�re going to die but when exactly?

A predictive theory is not a predictive theory if it can�t predict.

If Gann�s theory really is predictive, then there would be no market - as we would all know the price in advance!

Gann�s theory is subjective - and he really had no way of predicting the future with accuracy. It�s all subjective analysis and this is NOT a predictive theory.

Gann�s Logic

The basis of Gann�s theory is the principle that price and time must balance.

His methods are based on the squaring of price with time - this occurs when a unit of price equals a unit of time.

Gann for example would take a prominent high in the market, convert that dollar unit into a specified period of time and project it forward. When that time is reached, price and time are squared - and a market turn is due.

What? - How can one unit of price equal one unit of time? If you think about and answer this question for yourself, you will see how absurd the connection is.

This isn�t the only inconsistency used in his analysis - we also have the legendary Fibonacci numbers which are supposed to work with stunning accuracy - but they don�t, and neither do all sorts of astrology and geometry, that appeals to the far out investment crowd.

As we have seen, Gann was a trader who had modest success, and claimed to have discovered a predictive theory - which predicts nothing with accuracy.

Finally, we have so many subjective indicators cobbled together, that the theory can prove anything in hindsight, but if you want a tool to trade the markets look elsewhere.

For those of you still not convinced - I recently saw on the Internet, Gann�s trading methods selling for under $1,000!

Sounds like a bargain to get trades with 90% accuracy - I wonder how many serious money managers have it on their bookshelf.

Enough said.

Visit our web site now and grab your CD http://www.tradercurrencies.com

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Forex training Stories
Asian Morning Update 8th April 2008

Mon, 07 Apr 2008 19:43:16 -0400
The Dollar remains bogged down in confusion

European releases overnight:

February Forecast Actual
German Industrial Production (MoM) - 0.4% +0.4%
German Industrial Production (YoY) +5.3% +6.1%

April
Euro-zone Sentix Investor Confidence +0.2 +4.1

While some figures out of Germany are tending to warn against over-optimism (as opposed to pessimism) the industrial production numbers were pretty damn solid. This was largely down to the construction sector so may be a one-off. However, the fact that Euro-zone investors have recovered some of their nerves as shown in the Sentix confidence numbers does help.

ECB officials have retained a very focused and persistent line of confidence while clearly acknowledging the downside risk. It does sometimes strike me that half of the problem is confidence and mainly down to consumers. As I have often said, lose the confidence of the consumer and the economy will follow the States.

For now though the overall numbers emanating from Europe are of a mild but gentle pullback and this is likely to remain the status quo unless there is some other price shock.

States releases overnight:

February Forecast Actual
U.S. Consumer Credit USD 5.5bn 5.16bn

Consumer credit down and now we appear to be getting calls for a second fiscal package before the first has even hit the streets. The White House quickly poured dry ice over that suggestion saying that it is well too early.

The U.S. administration and the Fed have attempted to follow the same tack as the ECB in constantly voicing confidence over the economy and have only redirected the comments when external analysts have forced them to by sheer weight of argument derived from economic statistics.

The NBER head, Feldstein, not only announced his belief that the U.S. is in recession but backed it to extend to more than two quarters. He has a point. Very clearly the first half is looking like a dead duck and it will be touch and go whether the fiscal stimulus package will be able to drag the economy out of the mess in one quarter.

Interesting comments from Europe’s Juncker who declared that he will be sitting down with President Bush, no doubt with a cup of tea and a cake, to discuss the volatility in the Forex market – mainly about the excessive weakness in the Dollar.

Doesn’t sound that surprising ahead of the G7 meeting but additional comments highlight some confusion. He rules out concerted intervention and also said that unilateral action would be “doomed to failure.”

The first inconsistency is that the IMF has said once again that the Dollar is over valued, but Juncker insists that current rates do not reflect fundamentals.

Given the current global economic background what Juncker wants is a bit like a 6 year old child asking Santa Claus for a Porsche in his Christmas stocking… It just ain’t gonna happen… Unless of course the market begins to feel more confident about holding Dollars. If there is one market in the world that cannot be manipulated then Forex is that market. It is almost pure in its reflection of demand and supply.

And a little pointer of what is to come at this coming weekend’s G7 meeting the U.K. Financial Minister Darling is urging for more coordination on credit, repeating the call by the IMF. “G7 should lead the international response to these events” he declared.

He wrote in a letter, “It is essential that we have a clear plan of action... We should also consider the full range of policy options to ease current market conditions.”

The market continues to be suffering from exhaustion, confused by the bearish sentiment that just isn’t following-through, the outcome of Thursday’s ECB and BOE rate decisions and the G7 meeting at the weekend.

There is argument, counter argument and a double-back-flip argument, a 360 degree horizontal twist and failed slam dunks. But at the end of the day the market actually remains bearish – and seems lost as to know why…

More later once the daily analysis has been done…

There following releases are due from Asia due today:

Australia Prior
March NAB Business Confidence - 2.0
March NAB Business Conditions 11.0

Japan Prior
March Bankruptcies (YoY) 8.3%
March Eco Watchers Survey: Current 33.6
March Eco Watchers Survey: Outlook 39.5