How To Make Profits Trading in Commodities

A Study Of The Commodity Market, With Charts And Rules For Successful Trading And Investing

W. D. Gann

• Publisher: Golden Springs Publishing
• Year: 2016
• ISBN:
  9781786258922
• Topic: Economics
• Subtopic: Banks & Banking
• Index: Economics

W. D. Gann's justly famous work on the trading of commodities."I am writing this book to supply a universal demand: and give rules that will forecast the trend of commodities. Conditions have changed rapidly during the last few years and will change more rapidly after this great war is over than ever before in history. Men will return to the soil of Mother Nature to make a living. Investors and speculators will have to look for new ways to make money in the future and will find it more difficult in the stock market; therefore, the necessities of life, the basic commodities, will offer greater opportunities than investments in stocks and bonds, providing the trader knows the rules to follow."My object is to write something that will be helpful to people in trade lines and to those who have long years of experience in the commodity market, as well as the inexperienced trader who wants knowledge and needs to learn the ways to start right, and to protect his capital and make profits. Life affords no greater pleasure than that of helping others who are trying to help themselves."I am going to give the best of my forty years of experience in this book, and I hope to show others the way to help themselves and follow mathematical rules in the commodity market, which will result in profits. I do not believe in gambling or reckless speculation, but am firmly convinced, after years of experience, that if traders will follow rules and trade on definite indications, that speculation can be made a profitable profession. Trading in commodities is not a gambling business, as some people think, but a practical, safe business when conducted on business principles."I offer this book to the public with a sincere conviction that if they put in the time studying, they will derive great benefits."

CHAPTER I—CAN MONEY BE MADE IN COMMODITY FUTURES?

FOUNDATION FOR SUCCESSFUL TRADING IN COMMODITIES

To those of you who have traded in Wheat, Corn, Cotton, or any other Commodity and have lost money, I ask you this question—“Did you ever stop and consider WHY you have lost money?” If you have, you must answer honestly that you have lost money because you were guessing, following brokers’ opinions, or following someone’s advice who thought he knew more about it than you did. You probably bought when good news had been discounted and sold when bad news had been discounted. You did not follow any well-defined plan, or fixed rule, and after you had made a mistake and made a loss, you did not make any change when you made the next trade, but continued in the same old rut, and the result was that most of the time you were loser on balance.

Another reason for your failure to make profits was because you did not admit to yourself that you could be wrong and did not protect yourself when you made the trade. However, you made the mistake or however you made the loss, the fault was your own, because you had no definite rule to know just when to buy and when to sell.

You should learn to trade on knowledge and eliminate fear and hope. When you are no longer influenced by hope or fear, and are guided by knowledge you will have the nerve to trade and make profits. When you learn the past history of a Commodity, learn the way it is running, what cycle it is in, and then make a trade on definite knowledge, your chances for success are 100% greater. You must learn to trade on facts and to eliminate hope and fear. Learn to protect your capital and profits by use of STOP LOSS ORDERS. Then you will make real profit. When you make a trade and you are wrong, and realize your mistake, there is only one way to correct that mistake, and that is to get out of the market or protect with a STOP LOSS ORDER, limiting your loss to a small percentage of your capital. Your STOP LOSS ORDER protects you in many ways. When you buy a Commodity and protect it with a STOP LOSS ORDER, 1, 2, 3 or 5 cents away, you have limited your loss and know that you cannot lose any more. If you buy or sell Cotton, Hide, Rubber, or any Commodities traded in cents per pound or bushel, protected with stop loss order 20, or 40 points away, risking $100.00 or $200.00 on a contract, you know how much you can lose, and you should be able to take this loss and still have capital to trade with again. A safe plan is to follow rules and that is the only way in which you can hope to make a success in the future.

Nothing will help you more than going over the past history for Commodities, studying its actions under different periods and applying the rules that I will give you later. If you know what a Commodity has done in the past, you have a better chance to determine what it will do in the future. Supply and demand govern the prices of Commodities and all of the buying and selling is recorded in the prices. If you study price movements correctly, they will tell you more about what the market is going to do than any broker, newspaper, or so-called inside information. The time period is the most essential, because time tells what prices are going to do.

LEARN TO BE INDEPENDENT: The greatest help that I can give you is to show you how to help yourself. If a man or woman depends upon others for advice, or for inside information and follows what others think about Commodities, he will never make a success in speculation—or anything else. You must learn to be independent. Learn to do by doing, and to know by study and application. When you are following something that you KNOW, you will have the confidence and courage to be successful.

An intelligent man will not follow blindly the opinion of others, without knowing the basis of their opinion. When he himself sees, understands and knows the rules that forecast the trends of Commodities, he will become a successful man, and knowledge will give him the nerve to carry out his conviction. Then he will no longer say, “If I knew that the information I received on wheat was right, I would buy 100,000 bushels, or sell 100,000 bushels.” When he knows, based on study, that the indication on Wheat is definite, then he will buy, not with fear or hope, but with confidence and courage.

No matter what business you are interested in, learn all you can about it. The most important thing outside of your health for you to protect is your money. Therefore, take time to study. Prepare yourself to handle your money yourself and do not depend forever and entirely upon others.

A DEFINITE PLAN: Make up your mind to have a definite plan or aim in the future. Decide to follow rules when you buy or sell Commodities.

First, prove to yourself that the rules that I give you are good. They have worked in the past and they will work in the future. The rules given in this book are practical rules. They have cost me forty years of experience and hundreds of thousands of dollars to learn. I KNOW they will work. Don’t take my word for it. Prove to yourself that they are good. You will have to put in time for study. You will have to make sacrifices. But, if you are not willing to work and make sacrifices you will not make a success at anything. I have studied and improved my methods every year for the past forty years. I am still learning. I hope to make greater discoveries in the future.

After long years of study and research, I have simplified and perfected my rules so that they are practical for others to use and apply I have eliminated unnecessary details, and have cut down the work so you can get results quicker. You can make profits by strictly adhering to rules. Make up your mind. If you are not going to follow rules, don’t start speculating or trading in Commodities—or anything else for you will lose in the end.

KNOWLEDGE BRINGS SUCCESS. There is only one key which unlocks the door to big profits and that key is KNOWLEDGE. You cannot get knowledge without work. I have made a success by hard work and you, too, can make plenty of profits out of the Commodity market, if you study and work hard enough. Work is the only way to find the ROYAL ROAD TO RICHES in Commodity trading or speculating. Money always comes to knowledge. Without knowledge, money is worthless. You can increase your capital and make wise investments when you have acquired the proper knowledge.

QUALIFICATIONS FOR SUCCESS

1. KNOWLEDGE. I cannot say too much about the gaining of knowledge. You cannot get knowledge without spending time in study. You must not look for a quick and easy way to make money in the Commodity market. When you have paid in advance with time and study, and gained the knowledge, then you will find it easy to make money. The more time you put in gaining knowledge, the more money you will make later. Knowledge is not enough. You must put into use what you learn in order to benefit. You will learn by doing. Action and execution at the proper time bring profits.

2. PATIENCE. This is one of the very important qualifications for success in trading in commodities. First, you must have the patience to wait for an opportunity to determine a definite buying or selling point. When you make a trade, you must have the patience to wait for opportunities to get out right, or to make the profit. You must determine a definite change in trend before you close a trade to take profits. This only results from study of past market movement, and from acquiring the proper knowledge.

3. NERVE. A man can have the finest gun in the world, but if he hasn’t the nerve to pull the trigger he will never kill any game. You can have all the knowledge in the world, but if you haven’t the nerve to buy and sell you cannot make profit. Knowledge gives a man nerve, makes him bold and enables him to act at the right time. When a man fails to buy or sell at the right time, the result is that he becomes afraid. Fear is a detrimental influence. When he has too much nerve and buys on hope at the top, he is guessing. When influenced by hope alone, he cannot expect profits.

4. GOOD HEALTH. No man makes a great success in any business, unless his health is good, because a brilliant mind cannot work successfully with a weakened body. You will not have the proper patience or enough nerve, if your health is impaired. When you are in bad health, you become despondent, you lose hope, you have too much fear, and you will be unable to act at the right time.

I have been through the game through all of these years. Anything that could happen in the future in trading has happened to me. I have learned through experience. I have tried to trade when I was in bad health, always resulting in failure, but when I am in good physical condition, I act at the right time, making a success. If your health gives away, the most important thing is to work to get your health back in perfect shape, for HEALTH is WEALTH.

5. CAPITAL. When you have acquired all other qualifications for making a success trading in Commodities, you must, of course, have capital, but if you have KNOWLEDGE and PATIENCE, you can start with small capital and make large profits, provided you use STOP LOSS ORDERS; take small losses and do not OVERTRADE.

Remember, NEVER BUCK THE TREND. After you determine the trend of the market, go with it and regardless of what you think, hope, or fear, you will make a success. Follow rules to determine the trend and do not work on hope or guess work.

FACTS YOU SHOULD KNOW ABOUT TRADING IN COMMODITIES

HOW TO READ THE GRAIN OR COTTON TAPE. Many people outside of New York and Chicago have the opinion that they could make a great success if they could go to Chicago and read the grain tape there, or if they could go to New York and read the Cotton tape, or the tape on any other Commodity. To stand in a brokerage office or sit in a brokerage office and try to beat the market by reading the ticker and watching every quotation that comes out, is the most foolish thing a man could do, and the greatest waste of time, and the man who thinks that is the way to make money trading in Commodities is making the mistake of his life. Those of us who have tried it, know. Expert tape readers are few and far between. It is a study of a lifetime, and while the tape does show the trend of the market, there are so many minor changes and quick reversals that the average man cannot tell whether the main trend has turned or whether it is only a minor change that will last a few hours, a few days, or a few weeks before the main trend is resumed again.

Ask any honest broker what percentage of traders who stay in the broker’s office all the time and watch the tape make a success. If he is frank, he will tell you that 98% of them lose their money over a period of years. This is no fault of the broker, and no fault of the business. The trader invites the misfortune upon himself by trying to make a success by trading in the wrong way and not following rules. While, in a brokerage office you hear too many rumors, you get too many opinions, and there is no human being with a mind so strong that he cannot be influenced at times. You get too much gossip; you hear too much about large traders who are buying and selling and you do not always know whether these large traders are buying for long account or covering shorts, or just what the buying or selling means. If beating the Commodity market or making profits by trading were this easy, everybody would be rich.

Remember, you must pay in advance for what you get by time and study, and the time you spend in a brokerage office is wasted in most cases. There are too many disturbances, too many cross currents, in a brokerage office or around a ticker—too many ways to get you wrong. You make a greater success when you sit at home or in your office, quietly follow your charts and trade on definite indications.

I am not guessing or giving you a wild theory. I have gone through the mills. I have had every ticker in my office for years. I have thought I could not get along without them, and lost plenty of money by having them in the office and getting in wrong because the ticker showed some minor trend and threw me off the main trend which I had figured. I made a greater success when I took all of the tickers out of my office and have not had a ticker in my office for the past ten years.

Therefore, my advice to you is not to try to learn to read the tape in a brokerage office, or to stand in the office and watch the tape. You can’t make money that way. Follow the rules that I shall give you later. Study the charts and then you will know how to read the tape in a mathematical, scientific way and you will make profits instead of losses.

HOW THE TAPE FOOLS YOU. The tape does not fool traders. The traders fool themselves, because when the market is moving very fast and Wheat, Corn, Cotton or any other Commodity is moving up very fast, it increases the imagination of the man who is watching the market too closely. It causes him to become too optimistic and have too much hope, and he buys often right on top of a particular move, then a reaction follows, and after the reaction runs for several hours or several days, the market starts moving fast from the down side and the man’s hope changes to fear, and he sells out at the market, often at the bottom.

When you get too close to anything, especially to the ticker tape, it warps your judgment, and causes you not to follow rules or act on a well-defined plan, but to trade on hope or fear. A man cannot watch the tape and not be influenced by hope or fear.

Suppose that a trader has been watching the grain tape or the cotton tape all day and the market has been constantly advancing. Then around 2:00 P. M. the market suddenly starts to decline rapidly and gets weaker near the close. The man who is watching the tape thinks the market looks very weak and he sells out, maybe goes short. The result of this decline in the last half hour or the last fifteen minutes was floor traders evening up. They often do not carry anything over night, because they do not have to pay any commission. Therefore, the selling or buying of floor-traders in the last fifteen to thirty minutes may cause the market to appear to have a change in trend, while on the other hand, there has been no change in the main trend. The next morning when buying orders come in, the main trend moves right on up, and the man who sold out because he was scared the night before has lost his position and may not get in again until the market is very much higher.

The same thing happens when a market has been declining all day. In the last fifteen minutes or last half hour, floor traders even up. Other traders do not want to carry an increased amount of commodities overnight, so they are reluctant to sell. The result is that the market becomes thin or the offering small, the market rushes up fast in the last fifteen to thirty minutes, so the man who is short of the market, and right with the main trend, covers his shorts and buys for long account. The next morning the market resumes its normal course and continues on down. The trader, by watching too closely, has made a mistake, is out of the market and has missed his opportunity.

Another great mistake that the man who watches the ticker all the time makes is that he trades too often. He gets in and out several times a day and each time he pays a commission. If he buys or sells higher each time—which he often does—he decreases his chances of making profits. There are about 300 trading days in a year. Suppose a man made a trade every day during the year, which would be 300 trades, and considering that his commission and the getting in and out of the market cost him one-half point on grain, or ½c. Then he would pay 150 points in commission and expenses during the year. Or, trading in the same way in Cotton, if it cost him 10 points to get in and out, he would pay out about the same amount of money in the year in commissions. On the other hand, suppose that a man follows the rules, follows the trend, makes one trade each month, and that trade is successful. Then he would pay 12 commissions a year instead of 300, thus cutting his expenses down to about 6 points against the scalper’s expense of 150. To succeed in any business, you must consider the expenses. The losses in speculation are a part of the expenses, as well as the commission. If your losses or expenses are greater than your profits, then it is not a profitable business, and the result is a net loss.

Another fact that traders often overlook is that the more times a ma...