pg. 1

SO WHAT’S THE DEAL WITH GANN AND GANN

ANALYSIS?

“(I am) too busy to take time to answer inquires in regard to the rules except from people who

send $1.00 to pay for their inquiries”.

-W.D. Gann

“I am confident that the Dow Jones Industrial Average’s will never sell at 386 again”.

-W.D. Gann

Mark Putrino, CMT

pg. 2

INTRODUCTION

So what’s the deal with Gann? In the more than a decade that I spent as an institutional trader,

I can tell you that I never heard a professional trader or money manager ever once mention

Gann at anytime or anywhere. However, since I started Bulls Head and I have been talking to

individual investors and students of the markets I get plenty of questions about Gann so I

decided to take a look into Gann and Gann Analysis. Of course, while studying for the

Chartered Market Technicians Designation (CMT) I came across the methodology but that was a

long time ago and I had since forgotten many things. As it turns out, I was surprised by some of

the findings and conclusions that resulted from my in-depth study of Gann.

WHO WAS GANN?

Like many things surrounding Gann even his life is mysterious and I was only able to find a few

facts and they all came with questionable references. In any case it seems that Gann was born

in Texas on a cotton ranch in 1878 he eventually ended up in New York City and opened a

brokerage office in 1908. According to one source that I read, he was apparently quite the

playboy and a big partier and gambler. (My kind of guy…)

At this point it seems that he developed quite a reputation for himself as a phenomenal trader.

It is important to note that many of the stories that I have read about Gann’s alleged success

aren’t footnoted and the few that are all refer to the same dubious publication so I highly doubt

their accuracy. Furthermore, experienced traders know that success ultimately comes from risk

management and proper psychology, a fact that Gann seems to have understood although his

legions of followers do not.

Some of his followers seem downright crazy. For example, I am using “Pattern, Price, & Time”

by James Hyerczyk as the source of this biographical information and it reads like a bad ad in a

tabloid. He says that over 25 market days Gann had a success rate of 92.31% and turned $450

into $31,000. If you believe that, you’re a sucker. No surprise, there is no footnote. More

proof of Gann’s alleged greatness is from a colleague who saw him turn $130 into $12,000 in

one month. Of course, this ‘colleague’ is nameless.

After some research I actually found the article that this source came from. It wasn’t in a News

Paper but rather was in a magazine called “The Ticker and Investment Digest.” I don’t put too

much credence into it. For example, about twice a week I get a tabloid multipage

advertisement in the mail that claims that the writers last prediction yielded something

astronomical like a 4,000% return in a month or something similar and that if I don’t subscribe

pg. 3

immediately I will miss the next ‘once in a lifetime monthly idea’. In my opinion the article

concerning Gann’s returns was an advertisement like this, and not real journalism.

His followers also say that he allegedly predicted the Stealth Bomber sixty years before it

happened, predicted World War 2 and the exact date of the Kaisers abdication, and travelled

the world in order to study with mystical gurus. It’s hard for me to believe that people can

seriously believe this stuff. But just to be fair, in the 1930s many predicted stealth technology

because radar had just been invented and the feeling was that if man can invent it, then he can

certainly figure out a way to beat it, and many wise people thought that World War 2 was

inevitable when Hitler came to power.

But in my professional opinion these other claims of Nostradamus like abilities are ludicrous

and of course once again, there are no footnotes. (A further demonstration of Mr. Hyerczyk’s

irrationality comes when he suggests that Gann may have been the ‘first technical market

analyst’. Apparently he has never heard of Charles Dow, who invented Dow Theory, or the Rice

Traders in Japan who invented Candlestick Charting in the 1600s.)

So there you have it. Gann’s life and trading is the subject of much mystery and I’m sure that

we will never know many of the details surrounding it. I suppose that that is a good thing for

the people who push or profit from his work.

MODERN GANN ANALYSIS APPLIED

Gann practitioners claim that Gann thought specific geometric patterns and angles had unique

characteristics that could be used to predict price action.

Gann Angles are specified by two numbers and separated by an “x”. For instance a “1 x 4” line

rises one point for each four time periods. Gann believed that the ideal balance between time

and price exists when prices rise or fall at a 45 degree angle relative to the time axis. This

would be the “1 x 1” angle. There are nine angles, with the “1 x 1” being the most important.

1 X 8, 1 X 4, 1 X 3, 1 X 2, 1 X 1, 2 X 1, 3 X 1, 4 X 1, 8 X 1

Each of the angles is supposed to provide support and/or resistance if applied properly on a

chart.

pg. 4

Gann’s techniques assumed that equal time and price intervals be used on the chart so that a

rise/run of 1 x 1 will always equal a 45-degree angle. The ideal is one price unit for one

measure of time. Obviously that opens the door for a vast degree of interpretation. For

example, just what exactly is a price unit? Is it a point or a percentage?

Of course this isn’t practical to use one price units on a high price issue like the Dow Jones. This

is one of the fundamental flaws with this type of analysis. Gann purists apparently insist on

proper chart scale.

pg. 5

This is where it gets weird. According to its believers and followers, Gann theory is also

supposedly based on what he called “The Law of Vibration”, financial astrology, important

numbers and geometric patterns, and a whole slew of other esoteric things that would take its

own book to explain. Soon things dive into the realm of parapsychology and astrology. Maybe

this is why this particular brand of analysis appeals to people, much in the way that legends of

ancient aliens building the Pyramids or of Bigfoot romping around the forests of Canada do, but

I can attest that in the real world I have never seen a successful trader or portfolio manager use

Gann’s work.

CONTRAVERSY SURROUNDING GANN ANALYSIS

Gann’s followers and advocates treat him with a reverence that would probably be better

saved for church. They talk about how he traveled the word and studied with mystical Gurus

and how he was an accomplished mathematician. They talk of his $54,000,000 fortune. These

clowns think this guy was Nostradamus and to be honest some of the garbage written about

Gann is hard to read.

But there are many obvious holes in the Gann success theories. First of all, Gann Analysis as

advocated by modern practitioners can be easily disproven by something as simple as switching

from a standard to a logarithmic chart or changing the scale. I have seen and studied many

charting techniques and I can find no validity in Gann Analysis. Second, if you carefully read

some of the ‘analysis’ that has been put out by Gann enthusiasts it will soon be apparent that

much of it is contradictory. Third, what about common sense? We all know that if it’s seems

too good to be true than it probably is. If Gann had the success that his proponents’ alleged,

then he would have in fact amassed a fortune and there would most likely be some monuments

to his legacy like a museum or a park. Forth, if his forecasting methods were so accurate then

why did he spend so much time talking about risk management and trading rules in his books?

WAS GANN HIMSELF PERSONALLY SUCCESSFUL?

In “Trading for a Living” by Dr. Alex Elder he says that he interviewed one of Gann’s sons who

worked as an analyst at a Boston Bank. He told Dr. Elder that his famous father could not

support his family by trading and instead earned his living by writing and selling instructional

courses. When Gann died in the 1950’s his estate, including his house, was worth just a bit over

pg. 6

$100,000. Dr. Elder concludes that the legend of W.D. Gann, the supposed giant of trading, is

“perpetuated by those who sell courses and other paraphernalia to gullible customers.”

Unfortunately, I would have to say that I agree with him.

I think that’s the bottom line. Every since this information became public even the staunchest

Gann advocates have backed off of the claims of a $54,000,000 fortune. Even Mr. Hyerczyk

acknowledged that Gann’s Will indicated “a figure considerably below $50,000,000”

(Ahh…Yeah…$100 grand is ‘considerably below’ $54 mil…) and actually admits “he did not

amass the huge fortune alleged by rumor.”

It’s pretty obvious that the main focus of Gann’s career was writing and teaching courses. In

fact, if you read his original books there many advertisements for his work, one of which reads

that Mr. Gann is “too busy to take time to answer inquires in regard to the rules except from

people who send $1.00 to pay for the inquires”. Presently, I am not aware of any successful

money managers who charge for snippets of advice but I do know of many trading teaching

courses that do so. Don’t get me wrong…I am not here to bash Mr. Gann as a person and I did

not come across any evidence that he ever did anything wrong. He seems to have run a

successful business and I admire him for that. I am merely trying to expose and explain some of

the mystery that surrounds modern day Gann analysis.

MY FINDINGS

When I actually read Gann’s works I was surprised to find that he really didn’t talk about this

esoteric mumbo jumbo. Instead he talks about many trading rules and gives trading advice that

is driven by principles which are still valid today. I guess a Gann advocate could have a problem

with this because if Gann had such great predictive powers he wouldn’t need these rules.

Instead of relying on a lot of dubious analysis I went directly to the source. For example, I read

the “New Stock Trend Detector” which was written by Gann and published in 1936. I was

happily surprised to find out that it isn’t nearly as esoteric or as mysterious as modern Gann

enthusiasts make it out to be. On the charts that are in the book which are apparently made by

Gann himself, there are no Gann Angles or Gann Fans. Gann offers many trading rules and

insights and there are some predictions which are not correct. Gann followers seem to forget

to mention these.

In the first chapter Gann talks about how much he opposes the New Deal (remember this was

written in 1936 so it was a current issue). It’s amazing how much it sounds like the political

debate which is occurring today.

pg. 7

In the second chapter he talks about the ‘Foundation for Successful Trading’ which includes:

Independent Thought

A Definite Plan

Knowledge

Patience

Nerve and Good Health

Adequate Capital

There’s nothing mysterious here…no astrology for instance. A good question for a Gann

theorist would be ‘if his predictions are so accurate, why would be need these rules?’

In the next three chapters Gann gives a detailed verbal explanation and review of the market’s

recent history. If you read it closely, he is merely trying to explain how things like double tops

and triple bottoms form. For example, when he says ‘sell at recent top’ he is explaining how a

traditional double top pattern may form.

Chapter seven is “A Practical Trading Method” which covers:

Amount of Capital Required

Utilization of Stop Loss Orders

How to Detect Buying and Selling Points. For example, “sell against double and triple

tops”.

How to Pyramid

In conclusion most of this book made perfect sense to me and I didn’t find anything that was

too mystical or mysterious.

Next I read “45 Years in Wall Street” which was originally published in 1949. Again I was

surprised to find nothing mysterious or esoteric in it. The book consists of common sense

trading rules, detailed descriptions how chart patterns are formed, and some predictions for

the future.

The first few chapters include ‘Rules for Trading Stocks’ and Twenty-Four Never Failing Rules,

many of which make perfect sense. Then there are some lengthy detailed discussions

concerning how chart patterns form. It is apparent that like many technical analysts, Gann is a

believer in cycles and retracements. Then he talks about some great market operators of the

past, claims he leant money to Jesse Livermore, talks about over trading and the use of stop

loss orders. Then he spends some time discussing his predictions for the future which seem to

include war with Russia and an economic meltdown in the early 1950s. (Obviously both were

incorrect.)

pg. 8

Then I read “How to Make Profits Trading in Commodities” which was published in 1951. It

opens with a simple summary of the advantages of trading commodities instead of stocks, and

then Gann talks about various trading rules and principles which are similar to his other books.

Next he gives a list of qualifications that are required for success in trading. These include:

Stop loss orders

Independence

Definite plan

Knowledge

Patience

Nerve

Good Health

After this Gann goes through a whole bunch of topics relevant to commodity trading, and

spends a short time giving his advice and commentary on each topic.

How to Read the Grains or Cotton Tape

How the Tape Fools You

False Hope…Eliminate Fear and Hope

Markets Discount Future Events

Human Element is the Greatest Weakness

Time to Stay Out of the Markets

The Best Way to Trade

What to do when Commodities are going against you

What to do when you have a series of losses

How to answer margin calls

What Causes Booms and Wars

Human Nature Never Changes

Next Gann goes into a lengthy description of what he calls “Form Reading”. I suppose that this

discussion may seem somewhat mysterious if you don’t have a trading background, but it you

do it makes sense. For example, he says things like “sell at old tops or old bottoms” and “go

with the main trend. Never buck it”.

pg. 9

At this point he goes into a bunch of timing rules, but in my opinion these are more rules to

trade by than predictions. Yeah…maybe they can be viewed as magical but remember that

many trading systems have time stops as well as price stops.

For example, when he says something like “regardless of how high wheat is selling a decline of

five cents below the old top would indicate that the trend had reversed and at the medium

time would not go higher”. Of course, maybe he did mean them as exact predictions but there

are so many things like this that I am sure more than a few turned out as predicted.

Next there are literally hundreds of examples that Gann walks you through where he points out

how his rules or predictions regarding price movement in conjunction with time have been

accurate. Obviously hindsight is twenty-twenty and it is possible that Gann cherry-picked these

examples. And of course it’s also possible that the data is not correct…it isn’t footnoted and it

would take hundreds of hours to verify or disprove it. Maybe it’s just because I spent decades

working in New York City, but I just can’t believe everything that I’m told.

Finally, I read Truth of the Stock Tape which was Gann’s first book, written in 1923. It is

basically a ‘how to’ guide for beginners that covers many general trading rules. Once again

there is nothing here that is too esoteric or far out. He describes many principles and dynamics

that are still relevant to this day. As in his later books which were discussed before, he spends

time discussing different applications of trading rules and how it is important to do things like

maintain good physical health and to be aware of your psychology. Out of his four major

books, I thought that this was his best one and I would actually recommend it to those who are

interested in learning more about trading. I would also recommend it to those who think that

Gann was a visionary Guru because they will soon realize that their perceptions of him are

wrong.

When I did research into Gann Analysis it became immediately clear that the modern practice

and application of it is full of strange and mystical things. Much of it is focused around financial

astrology and the supposed powers behind different numbers. But when I read his actual

writings, I didn’t come across any of this. Some things may seem a little mysterious when he

writes about how chart patterns form because he sends time focusing on cycles and

retracement levels, but to those of us that have a background in trading his descriptions make

perfect sense. It seems that in many case modern promoters of his systems and analysis have

little understanding of his actual work.

pg. 10

GANN’S INCORRECT PREDICTIONS

When reading Gann’s works I found some pretty bad predictions, although I must say that I

admire how he had the guts to put precise such calls into print. Here are just two of the most

notable, which BTW I didn’t see on any of the websites that promote his work.

In 1936 Gann said “I am confident that the Dow Jones Industrial Average’s will never sell at 386

again”. At the time the Dow Jones was trading between 150 and 180. It is funny how the Gann

proponents always seem to miss that one. The Dow surpassed 386 in the fall of 1954.

In 1949 Gann predicted that the country would face economic calamity in the 1950s. “The

Depression and the Panic will come before the New Deal goes out of office in 1953. Nothing

can prevent it.” And “1951 and 1952 indicate very depressing years for business and a bear

market for stocks.” Gann was wrong about this as well and as it turned out the 1950s could be

the most prosperous decade the county has ever had. From the beginning of 1950 through the

end of 1953 the Dow was up about 40%.

GANN’S OUTSPOKEN POLITICAL VIEWS

Gann was an outspoken Republican who was disgusted with Franklin Roosevelt and the New

Deal. As a student of history it is quite interesting to note the parallels between what was

going on in the 1930s and what is happening now. Many of his points are astute and

surprisingly relevant 75 years later.

He calls the New Deal the “Raw Deal” and says that the policy is “creating a nation of loafers”.

He talks of how the policies that were being followed in Washington will ruin the country. He

points out that many of the laws that FDR passed were found to be Unconstitutional by the

Supreme Court.

Here are some of the things he said:

“The New Deal thrives on promises, promising everybody something for nothing”.

“What caused France to lose the War? It was Unions and Communism”.

“The right to union labor leaders is given by politicians who have betrayed to rights of people

who have elected them.”

pg. 11

WHY ARE PEOPLE OBSESSED WITH GANN?

Essentially I think it comes down to laziness and mystery. Most people do not like to work and

they would prefer easy answers. To these people the idea of studying a chart or two and using

some magic so they know which basket to put all of their eggs in is much more appealing than

actually working hard and studying the markets every day…which is the true secret of success.

And for whatever reason people enjoy a good mystery, sometimes to the point of irrationality.

Why do people believe that ancient UFOs built the pyramids? Why do people believe that

Nostradamus predicted the future? Why do people believe in Astrology? It’s because there is a

sucker born every minute, that’s why.

When I was researching this paper, I saw Gann Trading Classes and programs that were literally

offered for thousands of dollars. I spent about $70 to buy Gann’s four main books and over the

course of a weekend, I realized that the real Gann is nothing as advertised. But for someone

who has in interest in trading and history they are good books and there are many great lessons

about trading in them. In a way it is a shame that his ACTUAL work has been ignored and

misunderstood.

It goes without saying but I’ll say it anyway. If these Gann promoters had the ‘Holy Grail’ of

trading, they would be trading themselves. Surely they wouldn’t sell the information to others

who would all get into the same trades thereby diminishing their potential profits. Always

remember…whether it’s trading or any other aspect of life, if it sounds too good to be true than

it probably is.

MY CONCLUSIONS

As practiced modern Gann theory is basically a joke and I would recommend that you

not waste your time learning or applying it. It is easily disproven and full of

contradictions.

It is obvious that the legend of Gann has far surpassed the reality of the actual man.

Most modern Gann Analysis seems to be ridiculous adaptations and expansions of his

work that are nothing like he originally purposed. I think that there is a good chance that

if Gann himself saw a modern chart with a ‘Gann Angle’ or ‘Fan’ on it, he may not even

recognize it.

pg. 12

When I look at Gann’s original charts in his original books I do not see any Angles or Fans

drawn on them and his actual books do not contain any of the mysticism that his

modern day proponents are so fond of.

The books that were actually written by Gann, and not some modern day whack job

proponent, are actually full a great trading wisdom and verbal explanations of how

some classical patterns like double and triple tops or bottoms are formed.

Based on the available evidence I think it is obvious that Gann wasn’t successful as a

trader. If he was, he probably would not have had time to write all of these books. He

made his living selling his trading methods. Apparently he also wrote novels.

Gann was a relentless self promoter and he advertised in all of his books. He literally

has an ad in some of his original books that says he will answer questions about his work

for $1 per inquiry. In my opinion, this isn’t something that a legendary trader would do.

Gann may have made some accurate predictions, but he also made some that were very

wrong.

There many analysts who aren’t actually successful traders and Gann seems to have

been one of them. The secret of success in trading is comes from emotional discipline

and not from astrology and magic numbers. While many can produce decent analysis

regarding the markets, few can actually trade successfully.

The legend of Gann is alive and well and probably will be for some time thanks to

unscrupulous promoters who are cashing in on it.