One of the most important ways a contestant can prepare for competition is to know as much about the opponent as possible. In trading commodities, the primary opponent is the trader's own emotions. Once the emotions are under control, the "opponent" is the marketplace.
Know your market! While there are many analytical tools which may be applied to all markets, not all markets are identical. Markets have individual personalities or tendencies. It is important to study individual markets to learn specific identities.
A clear example of individuality is seen in seasonal patterns. The seasonal tendencies of each commodity are somewhat unique. Identifying a historical pattern can be very beneficial in the process of trade selection. To illustrate, a study of the monthly corn chart reveals March is a poor month in which to initiate a major short position.
With the exception of 1977, since 1972, a sale made in the corn market during March could have been bettered by waiting until later in the year. While impressive on the monthly corn chart, this pattern is even more clear for the December contract (not shown). How is such information applied?
Corn Belt farmers typically face a large portion of production expenses from late February through early April. Obviously, corn is a primary source of income for these producers and the need to generate capital spurs sales of corn in the period of need. By knowing March is a low probability month for favorable prices, plans can be made to market corn prior to the period of seasonal weakness or to postpone sales into later months. Also, producers should avoid selling the new crop (December) during March as the probability of selling at equal or higher prices later in the season is 100 (since 1972).
The applications for traders are rather obvious. If a trader is bearishly inclined, the information would suggest patience needs to be exercised to wait for a higher period of probability to initiate a short position. Bullish traders would try to accumulate long positions during March.
Seasonal tendencies are only one of many individual traits to study. Many markets have certain types of top or bottom formations which occur more often than not. For example, soybeans generally post some form of a triple top when marking a major high. Some markets respect support or resistance levels much better than others. Certain markets like to post a high percentage of turns on a specific day of the week or month. The list goes on.
There is only one way to learn market tendencies: study and study some more. Through hard work comes knowledge. W.D.Gann stated the importance of knowledge very well: "The dif- ference between success and failure in trading commodities is the difference between one man knowing and following fixed rules and the other man guessing. The man who guesses usually loses."
7 thoughts on “Traders Toolbox: More basic Gann”
yeah, I thought the same thing. Where is the Gann reference?
What a silly post. Yeah, something about seasonality of corn blah blah blah, but how does it relate to Gann as the title indicates?
Nice work. The only thing I would've changed is the chart. I'm not positive, but that looks like a nearby continuation chart. I try to get traders to take a look at a Gann format monthly chart (i.e. December Corn to December Corn) and not a nearby monthly chart. Also July 6 is another important date for corn.
I'm a Gann technician but I make sure I know all the key dates for reports and plantings. I believe you can't trade Coffee unless you know when the frost season starts in Brazil and you can't trade OJ unless you know when hurricane season begins and ends
Thanks James. Most total sense. I attended Jim's webinar a few days ago. I'm trading only equities and their options currently. Would you kindly suggest some related stocks of wheat, soybean and corn? I think of ADM, for instance. -William *Removed email address for privacy. Please respond through reply to the blog comment.
You've got more chance of winning a footy picking competition if you followed a system, such as picking home sides, rather than guessing. Trading is the same
Couldn't agree more. The new investors biggest obstacle is his own emotions. Thanks for another great post!
Comments are closed.