The Trading Methodologies of W.D. Gann: A Guide to... (PDF) (2024)

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The Trading Methodologies of W.D.GannA Guide to Building Your Technical Analysis ToolboxHima ReddyFT Press Vice President, Publisher: Tim MooreAssociate Publisher and Director of Marketing: Amy NeidlingerExecutive Editor: Jim BoydEditorial Assistant: Pamela BolandOperations Specialist: Jodi KemperMarketing Manager: Megan GraueCover Designer: Alan ClementsManaging Editor: Kristy HartSenior Project Editor: Lori LyonsCopy Editor: Krista Hansing Editorial ServicesProofreader: Kathy RuizIndexer: Larry SweazyCompositor: Nonie RatcliffManufacturing Buyer: Dan Uhrig © 2013 by Hima ReddyPearson Education, Inc.Publishing as FT PressUpper Saddle River, New Jersey 07458This book is sold with the understanding that neither the author nor thepublisher is engaged in rendering legal, accounting, or other professionalservices or advice by publishing this book. Each individual situation isunique. Thus, if legal or financial advice or other expert assistance isrequired in a specific situation, the services of a competent professionalshould be sought to ensure that the situation has been evaluated carefullyand appropriately. The author and the publisher disclaim any liability, loss,

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or risk resulting directly or indirectly, from the use or application of any ofthe contents of this book.FT Press offers excellent discounts on this book when ordered in quantity forbulk purchases or special sales. For more information, please contact U.S.Corporate and Government Sales, 1-800-382-3419,[emailprotected]. For sales outside the U.S., please contactInternational Sales at [emailprotected].Company and product names mentioned herein are the trademarks orregistered trademarks of their respective owners.Charts created using TradeStation. ©TradeStation Technologies, Inc. 2001-2012. All rights reserved. No investment or trading advice, recommendation, oropinions is being given or intended.All rights reserved. No part of this book may be reproduced, in any form or byany means, without permission in writing from the publisher.Printed in the United States of America First Printing September 2012ISBN-10: 0-13-273438-9ISBN-13: 978-0-13273438-7Pearson Education LTD.Pearson Education Australia PTY, Limited.Pearson Education Singapore, Pte. Ltd.Pearson Education Asia, Ltd.Pearson Education Canada, Ltd.Pearson Educación de Mexico, S.A. de C.V.Pearson Education—JapanPearson Education Malaysia, Pte. Ltd.Library of Congress Cataloging-in-Publication Data Reddy, Hima, 1979-The trading methodologies of W.D. Gann : a guide to building your technicalanalysis toolbox /HimaReddy.p. cm.ISBN 978-0-13273438-7 (hbk. : alk. paper)1. Technical analysis (Investment analysis) 2. Speculation. 3. Gann, William D.,b. 1878. I. Title.HG4529.R43 2013

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332.63’2042--dc232012028203

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For my father, Pandu R. TadooriContents at a GlanceForewordPrefaceChapter 1 The Work of W.D. GannChapter 2 Elements of the MarketChapter 3 Interpreting the MarketChapter 4 Trading the MarketChapter 5 Application of Gann’s PrinciplesChapter 6 Trade and Capital ManagementChapter 7 Bringing It All TogetherChapter 8 Beyond Trading BasicsAppendix A Gann’s 28 Trading RulesAppendix B Affirmative Versions of Gann’s 28 RulesAppendix C Gann’s Buying and Selling PointsAppendix D Gann’s Soybean ChartAppendix E Google, Inc. (GOOG) Highs and Lows by Calendar MonthIndex

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ContentsForewordPrefaceChapter 1 The Work of W.D. GannMarket PredictionsPublicationsFocus of This BookTrading RulesChapter 2 Elements of the MarketBasic Market MovementPrice Is KingPatterns RepeatThe Construct of TimeChapter 3 Interpreting the MarketGann’s View of Price MovementProjections Based on Existing Price MovementChapter 4 Trading the MarketExceeding Moves in TimeTriple Bottoms/TopsDouble Bottoms/TopsExceeding Moves in PriceBuy Old Tops/Sell Old BottomsRapid MovesTrading RangesChapter 5 Application of Gann’s PrinciplesGann’s Favorite NumbersGann’s Principles Applied Outside of PriceThe Importance of the Closing Price

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Chapter 6 Trade and Capital ManagementRisk AssessmentPlacement of OrdersTrade InitiationManagement of TradeTrade ExitReviewChapter 7 Bringing It All TogetherExploring Gann’s ExamplesRigid Rules, Flexible ObservationChapter 8 Beyond Trading BasicsLooking to the Left of the ChartRecommended ReadingObtaining ChartsGann’s Writing Style and ReferencesA Study “Partner”—an Invaluable ToolThe End...of the BeginningAppendix A Gann’s 28 Trading RulesAppendix B Affirmative Versions of Gann’s 28 RulesAppendix C Gann’s Buying and Selling PointsAppendix D Gann’s Soybean ChartAppendix E Google, Inc. (GOOG) Highs and Lows by Calendar MonthIndex

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AcknowledgmentsClare White—You introduced me to the opportunity to write this book. I amso thankful for your continued confidence in my skills and knowledge and yourthoughtful advice through the changing phases of my career. You are a mentor inthe truest sense.Ken Gerber—You shared your extensive Gann expertise, which addedimmeasurably to the quality of this book. I greatly appreciate the time and effortyou took to answer my questions, critique my ideas, and make suggestions thatonly a remarkable teacher could.Nikki Jones—You so graciously wrote the foreword for this book and allowedaccess to your company’s vast Gann resources for my research. I am so gratefulfor the words of support and encouragement that you provided along the wayand for the connection that we have maintained since our first Gann seminartogether.Marnie Owen—You provided impressively detailed and thoughtful reviews ofmy book material as it developed from a rough draft to a complete manuscript. Iam extremely thankful for you in my life, as a dear friend and as aknowledgeable colleague with whom I can share my fascination with technicalanalysis and the markets.Jim Boyd—As my publisher, you took a chance on me. I am so grateful for allthe guidance and insight you provided through the writing and productionprocesses.Kristy Hart, Lori Lyons, Krista Hansing, and the rest of the Pearsonproduction team—You transformed my book from a manuscript draft to a press-ready work! Thank you for your helpful suggestions and painstaking efforts,which improved the layout of the book while maintaining its context and intent.All of my extended family, friends, and colleagues—You express enthusiasmin my work and exude a perpetual interest in reading what I create, whether it’sbeen a blog post, or this book! I am very thankful for you, and I am inspired byeach and every one of you.Mom, Dad, Rekha, Swathi, and Abhi—Your patience, love, and support areinvaluable. Thank you for motivating me to try and be the best at what I do. Itmakes me want to be a better daughter and sister as well.Srinu—You ground me when my head gets into the clouds, but know when to

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let me fly free. I am so grateful for your encouragement and support in all of myendeavors. Beginning work on this book in 2011 was the second best thing I didthat year. The first was marrying you.

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About the AuthorHima Reddy, CMT, was first introduced to technical analysis, and to theworks of W.D. Gann, during her high school years by her father, who has had apassion for trading and the markets since the early 1980s. However, it wasn’tuntil after she completed an undergraduate Finance degree at IndianaUniversity’s Kelley School of Business, and returned to her home state of NewYork in 2001, that she immersed herself in the markets. She simultaneouslyvolunteered as a sponsorship coordinator for several Market TechniciansAssociation conferences, traded equity and commodity futures under the tutelageand guidance of her father, and completed the Chartered Market Techniciancertification. In 2006, she joined Informa Global Markets, an independentfinancial research firm providing live, 24-hour market analysis. As SeniorTechnical Analyst, she was responsible for producing timely and accurate short-term technical analysis and trading strategies for fixed income and FX markets.With analysis ranging through multiple timeframes, her team also preparedwritten updates covering longer-term trends. Hima’s “guru” has always beenGann—the first market analysis book she ever studied in-depth was How toMake Profits in Commodities—and to this day that is her go-to guide to themarkets. Since 2011 she has returned to trading independently and continues towrite about the financial markets. Her primary methods of technical analysisinclude pattern recognition and time duration relationships within markets basedon Gann’s methodology, momentum assessment through the use of the RelativeStrength Index (RSI), Fibonacci relationships, and moving average systemsincluding the use of channels for trade management. Hima now resides with herhusband in Baltimore, Maryland.