Expert: David Burton, CEO & Founder of School of Gann
Start: March 14, 2006 - 7:30GMT 02:30EST
End: approx. 08:30GMT 03:30EST
Topics that will be covered for above session are:
- Human Element: The Greatest Weakness
- You can never go broke if your trading account is less than 5%
- Gann didn’t believe in debt
Who is David Burton?
DAVID BURTON has been studying and trading the methods of the most famous trader of all time, W.D.Gann.Gann was a financial astrology up until his death in 1955. David has been studying astrology since 1980, not modern day astrology, the astrology of the ancients. David uses both helio-centric and geo-centric in his studies. In June 2002 on Gann’s birthday David ran the first four day workshop teaching the methods of Gann. Only running a few workshops a year to a limited number, he discovered that the basis, chart reading, money management,seasonal patterns etc were not under stood even by people that have been trading for a number of years,this lead to the home study course for the beginner completed in march 2005. To understand the methods
of Gann you have to have a strong foundation otherwise you will never keep your money. David hasjust set up a new website THE SCHOOL OF GANN
to keep Gann’s methods alive, hoping that people will study Gann and enjoy the journey and success David has had with Gann. David publicly forecasted
in advance the 130 high in cotton in 1995, the 737 high in wheat in 1996, the major low in cotton in 2001as well as many others which are on his website
www.schoolofgann.com
Speech Material:
There is a different phycology between people who have money, and those that don’t. Only poor people want money, the rich people don’t. They make more money because it’s a product of having passion for what they enjoy. Bill Gates has given away over 50 Billion dollars, if was interested money he would keep it. W.D.Gann study astrology etc because it was his passion, money was a bi-product of his studies. People who have money don’t have to rush into things as they can wait for opportunities (these people are not day traders!).
People who don’t have money panic as mounting bills force them to make untimely decisions.
People with money are usually more casual than those without. People with no money usually take big risks by borrowing and then speculate wildly.
As I have mentioned in previous articles, Gann didn’t believe in debt – either personal or national and always suggested to save money for times of panic. This puts you in a completely different mindset to someone who has debt. The U.S government and the people will panic over the coming years as they run out of money and become a third world country.(See the US Debt Clock at http://zfacts.com/p1461.html).
People like Jessie Livermore and Larry Williams (See the book “Winner take all”) have gone broke or lost a lot of money trading commodities because their positions were too big for their net worth.
Gann always recommended to have double your initial margin and divide your capital into 10 equal parts. The markets were at much lower levels when Gann was trading, and I’m sure if he was alive today he would do what I recommend which is to have three times the initial margin.
Going Broke
You can never go broke if your trading account is less than 5% of your net worth, therefore in the examples to follow of having a trading account of say $60,000.00 US ($58,146.00 in initial margins) you need to be worth $1.2 million US. If not, your trading account is too big.
Initial Margins Gann’s Recommendations My Recommendations
Corn $338 $676 $1,014
Soybeans $1,148 $2,296 $3,444
Wheat $506 $1,012 $1,518
10 Year T-Notes $1,350 $2,700 $4,050
Dow Jones $4,875 $9,750 $14,625
Sugar $1,260 $2,520 $3,780
Cocoa $980 $1,960 $2,940
Coffee $2,800 $5,600 $8,400
Cotton $1,400 $2,800 $4,200
Crude Oil $4,725 $9,450 $14,175
Total $58,146
These are per/Contract, therefore you could only trade one contract of each of theses markets on a $60,000.00 U.S account.
The best book ever written was Gann’s book “How to make Profits in Commodities”.
He has 28 rules to be followed on page 43. Outlined below I copy the rules and in italic expand on the meanings of these rules.
1. Amount of capital to use: Divide your capital into 10 equal parts and never risk more than one-tenth of your capital on any one trade.
This means your trading capital, not your total capital. Have money for 10 different markets.
2. Use stop loss orders. Always protect a trade when you make it with a stop loss order 1 to 3 cents, never more than 5 cents away, cotton 20 to 40, never more than 60 points away.
In today’s market, this represents 1 to 3% never more than 5%.
3. Never overtrade. This would be violating your capital rules.
Don’t day trade, you are too close to the market.
4. Never let a profit run into a loss. After you once have a profit of 3 cents or more, raise your stop loss order so that you will have no loss of capital. For cotton when the profits are 60 points or more place stop where there will be no loss.
Always protect your capital!
5. Do not buck the trend. Never buy or sell if you are not sure of the trend according to your charts and rules.
Trade with the trend, if an up trend and you get out, wait until the market corrects to go long again. Do the opposite in a bearish market.
6. When in doubt, get out, and don't get in when in doubt.
If there is no trend, leave your money in the bank or look for another market that is trending.
7. Trade only in active markets. Keep out of slow, dead ones.
Self explanatory.
8. Equal distribution of risk. Trade in 2 or 3 different commodities, if possible. Avoid tying up all your capital in any one commodity.
Chart about 15 different commodities or currencies. The reason you don’t place all your $60,000.00 in one commodity is that the other markets may start to move and you won’t be able to trade them. Also you will become impatient if you have all your money in only one or two markets.
9. Never limit your orders or fix a buying or selling price. Trade at the market.
Self explanatory.
10. Don't close your trades without a good reason. Follow up with a stop loss order to protect your profits.
Don’t close a trade just because you need the money, follow up with a stop loss order.
11. Accumulate a surplus. After you have made a series of successful trades, put some money into a surplus account to be used only in emergency or in times of panic.
You can only accumulate a surplus if you have no debt. Only a very small percentage of the population has no debt. I trade to save and no other reason.
12. Never buy or sell just to get a scalping profit.
Don’t day trade, there is more money in the longer swings.
13. Never average a loss. This is one of the worst mistakes a trader can make.
Self explanatory.
14. Never get out of the market just because you have lost patience or get into the market because you are anxious from waiting.
Self explanatory.
15. Avoid taking small profits and big losses.
Self explanatory.
16. Never cancel a stop loss order after you have placed it at the time you make a trade.
Self explanatory.
17. Avoid getting in and out of the market too often.
Getting in and out of the market too often only creates brokerage for your broker.
18. Be just as willing to sell short as you are to buy. Let your object be to keep with the trend and make money.
You can’t do this with all stocks, so trading commodities and currencies have a bigger advantage.
19. Never buy just because the price of a commodity is low or sell short just because the price is high.
Have a look at Long Term charts (more than 30 years) to see where old support and resistance levels are.
20. Be careful about pyramiding at the wrong time. Wait until the commodity is very active and has crossed Resistance Levels before buying more and until it has broken out of the zone of distribution before selling more.
Self explanatory.
21. Select the commodities that show strong uptrend to pyramid on the buying side and the ones that show definite downtrend to sell short.
Self explanatory.
22. Never hedge. If you are long of one commodity and it starts to go down, do not sell another commodity short to hedge it. Get out at the market; take your loss and wait for another opportunity.
Self explanatory.
23. Never change your position in the market without a good reason. When you make a trade, let it be for some good reason or according to some definite rule; then do not get out without a definite indication of a change in trend.
Change your position according to the charts.
24. Avoid increasing your trading after a long period of success or a period of profitable trades.
Be aware that you too have bad cycles. Just like the markets, you will have bullish and bearish times in your life. If you have 3 losses in a row stop trading, your cycle has changed.
25. Don't guess when the market is top. Let the market prove it is top. Don't guess when the market is bottom. Let the market prove it is bottom. By following definite rules, you can do this.
Self explanatory.
26. Do not follow another man's advice unless you know that he knows more than you do.
Learn to be independent.
27. Reduce trading after first loss; never increase.
Self explanatory.
28. Avoid getting in wrong and out wrong; getting in right and out wrong; this is making double mistakes.
Self explanatory.
Human Element – The Greatest Weakness (excerpt from How to Make Profits in Commodities)
When a trader makes a profit, he gives himself credit and feels that his judgement is good and that he did it all himself. When he makes losses, he takes a different attitude and seldom ever blames himself or tries to find the cause within himself for the losses. He finds excuses; he reasons with himself that the unexpected happened, and that if he had not listened to someone else’s advice, he would have made a profit. He finds a lot of ifs, ands and buts, which he imagines were no fault of him. This is why he makes mistakes and losses the second time.
The investor and trader must work out his own salvation and should blame himself and no one else for his losses, for unless he does, he will never be able to correct his weaknesses. After all, it is his own acts that cause his losses, because he did the buying and the selling. You must look for the trouble within and correct it. Then you will make a success, and not before.
One of the main reasons why traders make losses is because they do not think for themselves. They allow others whose advice and judgement is no better than their own to think for them and advise them. To make a success, you must study and investigate for yourself. Unless you change from a “lamb” to a thinker and seek knowledge, you will go the way of all lambs, - to slaughter under the margin caller’s axe. Others can only help you when you help yourself.
I can give you the best rules in the world and the best methods for determining the position of a commodity, and then you can lose money on account of the human element, which is your greatest weakness. You will fail to follow rules. You will work on hope or fear instead of facts. You will delay. You will become impatient. You will act too quickly or you will delay too long in acting, thus beating yourself on account of your human weakness, then blaming it on the market. Remember that is your mistake that causes losses and not the action of the market or the manipulators. Therefore, strive to follow rules, or keep out of speculation, for you are doomed to failure.
If you will only study the weakness of human nature and see what fools these mortals be, you will find it easy to make profits by understanding the weakness of human nature and going against the public and doing opposite of what other people do. In other words, you buy the near bottom on knowledge and sell near the top on knowledge, while other people who just guess do the opposite. Time spent in study of price, time and past market movements, will give you a rich reward.
Outcomes
Gann was completely right. A high percentage of students I have taught in my workshops have failed or given up, some have gone broke because they failed to follow the rules Gann set out. Others have made hundreds of thousands of dollars. They all have the same information, but not the same disciplines or passion as Gann or I. They think they are smarter than Gann who traded for 50 years. Ego will always send you broke.
Benjamin Franklin said “an ounce of prevention is worth a pound of cure”, and “he that lives upon hope will die fasting” and “People that are wrapped up in themselves make small packages”.
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