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.

What are Your Options Regarding Forex Options Brokers?

Forex option brokers can generally be divided into two separate categories: forex brokers who offer online forex option trading platforms and forex brokers who only broker forex option trading via telephone trades placed through a dealing/brokerage desk. A few forex option brokers offer both online forex option trading as well a dealing/brokerage desk for investors who prefer to place orders through a live forex option broker.

The trading account minimums required by different forex option brokers vary from a few thousand dollars to over fifty thousand dollars. Also, forex option brokers may require investors to trade forex options contracts having minimum notional values (contract sizes) up to $500,000. Last, but not least, certain types of forex option contracts can be entered into and exited at any time while other types of forex option contracts lock you in until expiration or settlement. Depending on the type of forex option contract you enter into, you might get stuck the wrong way with an option contract that you can not trade out of. Before trading, investors should inquire with their forex option brokers about initial trading account minimums, required contract size minimums and contract liquidity.

There are a number of different forex option trading products offered to investors by forex option brokers. We believe it is extremely important for investors to understand the distinctly different risk characteristics of each of the forex option trading products mentioned below that are offered by firms that broker forex options.

Plain Vanilla Forex Options Broker - Plain vanilla options generally refer to standard put and call option contracts traded through an exchange (however, in the case of forex option trading, plain vanilla options would refer to the standard, generic option contracts that are traded through an over-the-counter (OTC) forex dealer or clearinghouse). In simplest terms, vanilla forex options would be defined as the buying or selling of a standard forex call option contract or forex put option contract.

There are only a few forex option broker/dealers who offer plain vanilla forex options online with real-time streaming quotes 24 hours a day. Most forex option brokers and banks only broker forex options via telephone. Vanilla forex options for major currencies have good liquidity and you can easily enter the market long or short, or exit the market any time day or night.

Vanilla forex option contracts can be used in combination with each other and/or with spot forex contracts to form a basic strategy such as writing a covered call, or much more complex forex trading strategies such as butterflies, strangles, ratio spreads, synthetics, etc. Also, plain vanilla options are often the basis of forex option trading strategies known as exotic options.

Exotic Forex Options Broker - First, it is important to note that there a couple of different forex definitions for "exotic" and we don’t want anyone getting confused. The first definition of a forex "exotic" refers to any individual currency that is less broadly traded than the major currencies. The second forex definition for "exotic" is the one we refer to on this website - a forex option contract (trading strategy) that is a derivative of a standard vanilla forex option contract.

To understand what makes an exotic forex option "exotic," you must first understand what makes a forex option "non-vanilla." Plain vanilla forex options have a definitive expiration structure, payout structure and payout amount. Exotic forex option contracts may have a change in one or all of the above features of a vanilla forex option. It is important to note that exotic options, since they are often tailored to a specific’s investor’s needs by an exotic forex options broker, are generally not very liquid, if at all.

Exotic forex options are generally traded by commercial and institutional investors rather than retail forex traders, so we won’t spend too much time covering exotic forex options brokers. Examples of exotic forex options would include Asian options (average price options or "APO’s"), barrier options (payout depends on whether or not the underlying reaches a certain price level or not), baskets (payout depends on more than one currency or a "basket" of currencies), binary options (the payout is cash-or-nothing if underlying does not reach strike price), lookback options (payout is based on maximum or minimum price reached during life of the contract), compound options (options on options with multiple strikes and exercise dates), spread options, chooser options, packages and so on. Exotic options can be tailored to a specific trader’s needs, therefore, exotic options contract types change and evolve over time to suit those ever-changing needs.

Since exotic forex options contracts are usually specifically tailored to an individual investor, most of the exotic options business in transacted over the telephone through forex option brokers. There are, however, a handful of forex option brokers who offer "if touched" forex options or "single payment" forex options contracts online whereby an investor can specify an amount he or she is willing to risk in exchange for a specified payout amount if the underlying price reaches a certain strike price (price level). These transactions offered by legitimate online forex brokers can be considered a type of "exotic" option. However, we have noticed that the premiums charged for these types of contracts can be higher than plain vanilla option contracts with similar strike prices and you can not sell out of the option position once you have purchased this type of option - you can only attempt to offset the position with a separate risk management strategy. As a trade-off for getting to choose the dollar amount you want to risk and the payout you wish to receive, you pay a premium and sacrifice liquidity. We would encourage investors to compare premiums before investing in these kinds of options and also make sure the brokerage firm is reputable.

Again, it is fairly easy and liquid to enter into an exotic forex option contract but it is important to note that depending on the type of exotic option contract, there may be little to no liquidity at all if you wanted to exit the position.

Firms Offering Forex Option "Betting" - A number of new firms have popped up over the last year offering forex "betting." Though some may be legitimate, a number of these firms are either off-shore entities or located in some other remote location. We generally do not consider these to be forex brokerage firms. Many do not appear to be regulated by any government agency and we strongly suggest investors perform due diligence before investing with any forex betting firms. Invest at your own risk with these firms.

What is Forex Trading

Foreign Exchange Market, or Forex as it is commonly called, is an international exchange market to buy and sell different currencies from around the world. An investor has the ability to buy and sell these currencies in order to create gains from small movements in the value of one currency over another. The forex market is open from Monday at 0:00 GMT until Friday at 10:00 GMT. For this reason Forex traders are not limited to the general time constraints of the New York Stock Exchange or NASDAQ.

This versatility attracts many investors to become Forex traders. The liquidity of the Foreign Exchange Market is also very attractive for the Forex investor as trades range from 1 to 1.5 trillion dollars on a daily basis. These massive amounts of trades make it extremely difficult for any one trader to affect the market.

Foreign Exchange Trading is simply the purchase and sales of currency based on the strength of the currency and the fluctuation in the value of that currency. For example, if one were to invest $1,000 against the British pound at 1.7999 with a 1% margin and anticipate the exchange rate to climb. If that occurs and you close the exchange rate at 1.8050 you would earn roughly $400. Forex is giving you a 40% return on your investment.

Forex offers the possibility of huge profits in relatively short periods of time. The stock exchange is very different in that positions are generally maintained over a longer period of time. Although there are day traders, Forex traders have much shorter hold times on positions. Similar to the stock market marginal accounts can be obtained in the Foreign Exchange Market as well.

Forex marginal accounts are very engaging as they allow Forex traders to take large positions without having to make a large deposit. In many circumstances one can fund a marginal account with .05% the necessary funds. In other words, $500 would allow a $100,000 position. In order to trade Forex effectively and profitably, one must have some type of method to follow. There are two methods used in determining what Foreign Exchange trades one should make. There are two methods, fundamental Forex analysis, and technical Forex analysis.

Technical analysis is the most commonly used practice and uses the assumption that the changes that occur in the Foreign Exchange Market happened for a reason and are accurate. The belief is that if a currency has been trading towards a high then that currency will mostly continue towards that high with the adverse being true as well. The technical Forex view does not try to make long term predictions about the market but instead simply tries to take advantage of what has already been seen in the past.

The fundamental Forex method takes into account all aspects of the country in which the currency is traded. Things such as the economy, the countries prime interest rates, war, poverty level, and other factors are taken into account. If there is a sharp rise in the prime interest rate a Forex trader may take a position based on that information.

Online Forex trading has the potential of being extremely lucrative. One can learn to trade by creating an online Forex Account and begin by using a learning account without real funds. This will help you to understand the Forex trading process and how currencies are affected by different things that are happening on a global scale.

Why do Forex Trading?

So.. you want to make lots of money in forex trading? Well, before you get your feet wet....let me refresh your mind why forex trading is such a hot money maker...

The cash/spot FOREX markets have certain unique attributes that offer an unmatched potential for profitable trading in any market condition or any stage of the business cycle. It leaves one to wonder why bother in the first place?

Forex trading offers people who trade:

A 24-hour market: A forex trader has the chance to take advantage of all of the profitable market conditions at any time; which means that there is no waiting for the start like the New York Stock exchange.

Highest liquidity Possible: The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the market whenever they want during almost any market condition minimal execution barriers or risk and no daily trading limit.

High leverage ratio: It has a leverage ratio of up to 400 is normal when compared to a leverage ratio of 2 in the equity markets. Of course, this makes trading in the cash/spot forex market awkward a swell because it makes the risk of the down side loss much higher in the same way that it makes the profit potential on the upside much prettier.

Low cost per transaction: The retail transaction cost is actually less than 0.1% under the normal market conditions. At larger dealers, the spread could be less than 5 pips, and may expand a great deal in fast moving markets.

Always a good market: A trade in the FOREX market means selling or buying one currency against another. In essence, a bull market or a bear market for a currency is defined in terms of the outlook for value against other currencies. If the outlook is positive, you get a bull market where a trader profits by buying the currency against other currencies.

Inter-bank market: The foundation of the FOREX market consists of a global network of dealers that communicate and trade with their clients through electronic networks and telephones. There are no organized exchanges like in futures that are there to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets.

No one can corner the market: The FOREX market is so large and has so many participants that no single trader, even a central bank, can control the market price for an extended period of time.

It is not completely Unregulated: The FOREX market is seen as an unregulated market although the operations of major dealers like commercial banks in money centers are regulated under the banking laws.

For the average person who is willing to get into forex trading, this market is just a better bet. With it being so wide open like it is, you have a higher gross potential than with any other trade type.

Why you need to develop your own forex trading system

There are many forex trading systems and trading strategies out there. There are many free ones printed in forex trading articles, journals, books and on trading-related websites. You can buy them as software or you can subscribe to them periodically.

Novice traders say they do not have the time, the aptitude, the talent nor the brains to work out how to trade properly. They would rather purchase a program or subscribe to a forex trading system for hundreds - or in some cases - thousands of dollars. They say they do not have to do anything except be told what to buy, when to buy and how much of it you need to buy. Some ask me if this strategy or approach is advisable for trading the forex markets. To answer this question, I am then forced to consider the advantages and disadvantages of using such an approach to trading.

There are reasons why a trader would use a forex trading system or forex trading strategy that someone else developed and tested:

1. It is easy. A novice trader does not need to study how the forex market works and how he interacts with that market. He does not need to educate himself: he does not need to bother with books and seminars. He does not need to test the trading system, since the seller has already done that for him and reported promising hypothetical or actual results.

2. A novice trader hopes to get a forex trading system at a ’bargain’ price... sometimes even for free.

Hazards of trading a forex system or strategy developed and tested by someone else are the following:

1. Faulty Trading Systems

   There are many faulty forex systems out there. They may be faulty because their assumptions and their mechanisms may no longer be true, accurate or valid. As a novice trader, how can you distinguish between the good systems and the bad systems if you don’t know how trading systems are built?

2. Discipline and confidence

   All systems have drawdown periods. Some good forex trading systems may not make money for six months or an entire year. Even if it was a good system, can you continue to follow it even if it gives you a loss after a loss after a loss? How can you follow it if you do not have confidence in it? How can you be confident if you do not know the ins and outs of the system and if you have not tested it yourself?

I do not believe that people would blindly follow a system even if they were told that it would bring them riches. I can give someone a forex trading system, I can supply him with exceptional hypothetical or actual results and still, he would not be able to follow it.

I remember giving my dad a fully-mechanical forex trading system I developed. I told him a few simple rules and I told him not to question them. All he had to do was to follow them. We both traded it for two months, I grew my small account by roughly 50% (it happened to be a good two months), but he was losing. He wondered why. I asked to see his trading records. When I looked at his trading records, I found that he kept disobeying the rules. When I asked him why he disobeyed them, he wanted to improve the results after it had a couple of losing trades. He was trying to improve the results. According to him, the system asked him to do what he thought was not right during certain market conditions, so he did not follow it.

To overcome the hazards above, I see no way except for a trader to learn how to develop his own trading system. This is the only way a trader can know if a particular trading system or strategy is good or not.

Once a trader learns how to develop forex trading systems and strategies, he can then be better equipped to test them as well. By this point he might even find that he is better off using the system he created, because it becomes increasingly difficult to find another system more suited to his profit objectives while operating within his risk tolerance levels. It is likely that once he develops this level of competence, he will simply acquire other systems only to dissect them, grab the parts he likes and add them to his own system. To me, the irony is that for a trader to know which system to purchase, he must first learn how to create a system. And after knowing how to create a trading system, he will no longer have the need to buy one.

In conclusion then, I would have to say that if you are not inclined to learn how to develop your own trading methodology, then perhaps you should consider giving your money for someone else to invest. Give it to someone who is trading a system that he developed and tested himself because he is more likely to have the confidence and courage to follow his own set of rules.

How To Get Started In FOREX Trading

The foreign exchange market (FOREX) offers many advantages to investors. But you need to know where to begin. This short guide will give you the FOREX basics, so you can quickly start participating in this fast growing market.

In the past, foreign exchange trading was limited to large players such as national banks and multi-national corporations. In the 1980’s the rules were changed to allow smaller investors to participate using margin accounts. Margin accounts are the reason why FOREX trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.

A Learning Curve

FOREX is not simple, though, so you’ll need some knowledge to make wise investment decisions. Although it is relatively easy to start trading on the FOREX, there are risks involved. Your first move as a beginner should be to find out as much as possible about the forex market before risking a dime.

Find A Forex Broker

FOREX traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.

Open an Account with a forex borker

Opening a FOREX account is as simple as filling out a form and providing the necessary identification. The form includes a margin agreement which states that the broker may interfere with any trade deemed to be too risky. This is to protect the interests of the broker, since most trades are done using the broker’s money.

Once your account has been established, you can fund it and begin trading.

Many brokers offer a variety of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in FOREX trading for as little as $250. Standard accounts may have a minimum deposit of $1000 to $2500, depending on the broker. The amount of leverage (how much borrowed money you can use) varies with account type. High leverage accounts give you more money to trade for a given investment.

Trades are commission-free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the ’spread’: the difference between bid and ask prices.

Paper Trading Forex Market

Beginning traders are strongly advised get accustomed to FOREX by doing "paper trades" for a period of time. Paper trades are practice transactions that don’t involve real capital. They allow you to see how the system works while learning how to use the various software tools provided by most FOREX brokers.

Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new FOREX investor should use these demo accounts at least until they are consistently showing profits.

FOREX Software

Each forex broker has its own set of software tools for making transactions, but there are a few tools that are common to all FOREX brokers. Real-time quotes, news feeds, technical analyses and charts, and profit-and-loss analyses are some of the features you can expect to see on most online brokers’ web sites.

Almost every broker operates on the Internet. To access a broker’s online services you’ll need a reasonably modern computer, a fast Internet connection, and an up-to-date operating system. Once your account is set up, you can access it from any computer just by entering your account name and password. If for some reason you are unable get to a computer, most brokers will allow you to make trades over the phone.

There are lots of ways to make money. FOREX trading is just one more potential stream of income — if you are prepared to learn and practice.

Learn Forex

How do I begin? Please give it to me SIMPLY.

1. The best advice on how to learn to trade profitably is to learn from experts with proven track records. Many learning styles are available to beginners at all levels: books, CDs, online courses, group seminars, even one-on-one mentors who will come right your home for a few days. We outline our Forex-Trader picks in Learning Forex Trading. Learning to trade from experts is worth every penny and has saved us untold thousands in mistakes.We would not recommend starting forex trading without any training. It is not hard to learn, nor difficult to trade successfully, but you must first provide yourself with a basic functioning knowledge of ’the game you’re in’.

2. While you are learning you will need charting software to practice reading the Market. Charting is an indispensable tool that shows you in real-time data what the market is doing moment by moment and also what the market has done in the past. As you learn to analyze these charts you can determine what trades to enter and exit, where to set your stop losses, limits etc. There are several good charting software services that you can subscribe to online monthly. See our Forex-Trader tested Charting Software picks in Tools of The Trade.

3. Then, to perform your actual trades online you need a real-time ’trading platform’ to execute your ’buys’ and ’sells’ directly in the Foreign Currency Market. You obtain a trading platform from a Forex Clearinghouse that is connected real-time to the interbank market. There are many good Clearinghouses (also confusingly called Brokerage Firms, Market Makers, etc.) that provide you with the trading platform to trade the funds in the account you have opened with them. Before you begin trading your ’real’ money, while you are learning, you will practice on your own ’demo account’ with play-money in it, which will be provided to you by the clearinghouse you plan to trade through. The contractual relationship you enter into with your Clearinghouse is a very important one because the Clearinghouse you choose determines many trading features and financial advantages to you both as a trader and as an investor. Forex-Trader tested Clearinghouses are reviewed in Tools of The Trade.

We have outlined a Getting Started path with uncomplicated steps. This is the path that we would take if we were beginning trading over again today with ’what we know now’. The products and services we mention in these steps are all ones that we have personally used for some time with consistent success. As always you are free to forge your own path, and if you do, happy hiking. There is a mountain of products and services try out, and if you find ones you like better we would love to compare notes with you.

Explain More About Charting Services

To trade successfully you also must have good charting software and instantaneous data feeds critical to helping you analysis and interpret the movement of currencies moment to moment so you know when/why to buy or sell — this you subscribe to monthly. You can get a 2 week or more demo to familiarize yourself with one that has the features you like. The costs also vary, and some companies require a year commitment. There are some free charting services offered through the clearinghouses, but they tend to lack the tools to be truly useful. There are also some costly proprietary Specialty Software charting ’hybrids’ which are market forecasters tools that look more like video games than charts.

Explain More About How Clearinghouses Work

A good clearinghouse (i.e.. your computer access/link to the live Forex Exchange Market) is the partner with which you trade the money you have deposited with them in your trading account. After trying and demo-ing many we have found a small handful that are truly excellent for the beginner (and continue to be excellent as you grow) — meaning user friendly, legally accountable to regulatory bodies, and offering fair costs (spreads) for their services/trading software platforms. There still are many worrisome ones practicing in this closing era of unregulated forex trading (new Commodities laws are imminent).

The topic of matching the right clearinghouse for your needs is discussed more in Tools of the Trade, because it depends on a number of factors — how much you can open an account with, how much the clearinghouse profit spread, what your liquidity needs are, your minimum/maximum stop loss and margin requirements, even where you live and how much time you have to give to trading in a 24 hr. day.

How Much Does it Cost to Begin to Trade?

Learning to trade will entail the cost of books and whatever traiining method you choose. It will also include a reliable computer with a minimum 128 Mb of memory to run the charting software and trading platform. Ongoing ’costs of operation’ include the monthly costs of high-speed internet, charting software, the email forecasting subscriptions — plan on spending $150./mo. up for ongoing costs.

What about Pooled Clearinghouse Accounts to Trade with More Leverage?

We strongly do not recommend pooled accounts in any circumstance. Perhaps you are considering self-trading a pooled- together family account because it would give you a perceived advantage of more leveraged funds to trade (50:1 up to 100:1 leverage) — any risks of loss represent a potential risk to family relationships, and for this reason alone we do not recommend aggregating with family or friends.

However much worse are the too-numerous negative experiences of people allowing their investment funds to leave their control to become part of a ’managed’ pooled account. Not only is it a very risky investment idea, it is illegal for anyone to ’pool’ accounts without compliance with SEC (a USA Securities Exchange Commission) or international equivalent license. Never relinquish direct control over your money/trading account to anyone (i.e.. the ability to make withdrawals, deposits etc. directly by your own authority into your own account).

A good fund manager, if you do choose to go the (legitimate) Managed Account route rather than the Self-Trader route, will make certain you have your own ’segregated account’ in your own name in a bank or brokerage firm. These individual segregated accounts can still be traded together as though they were in a single account by a designated trader as long as the clearing house uses a trading platform that allows it. You, as the investor/account holder, have direct access online to your account activity at all times, and direct control over your own account in your own name (just like a bank account). The importance of this, for the safety of your funds, cannot be over emphasized.