GANN MASTER FOREX

Trading Course
Section 1
Basic Tools
• “A picture is worth a thousand words” and I
think that is especially true when talking about
trading.
• To me, trading is the process of training your
eyes to recognize the set ups that you have
learned, to react to that set up with a plan that
includes your entry, your stop, and your profit
targets, and then to repeat this process over and
over again.
• I prefer chart reading for trading. The chart gives so much
more information than just one day's tape, and time cycle
analysis can readily be applied to the chart patterns to
predict the future. To start our study we need charts.
• We can draw these by hand which is always preferred if
you are only following a dozen stocks or commodities, but
for practical purposes a computer software program will
make things much easier and allow you to follow thousands
of individual issues and also mechanically trade with a
system.
• Each chart shows you how I analyze the charts
and points out details that you can use to begin
to fortify your own analysis.
• Trading can be a very financially rewarding
endeavor if one has the proper education and
approach, and is disciplined enough to follow
strict rules.
• The difference between gambling and
speculation is that in gambling the odds are
stacked against you and set by the gambling
establishment. In speculation we control the
risks - when to buy and sell and at what price,
how much to buy and sell, and how much to risk
on any trade. Many times we can set those odds
90% in our favor.
• Most traders can spend years trying to find and
develop the “right” system with the expectation
that it will yield excellent results and make a lot
of money for them.
• A good system, coupled with a sound money
management and a disciplined trading plan, is
fundamental indeed. Every trader is looking for
the “holy grail”.
• The holy grail is knowing when to get in the market and why
and when to get out and why.
• If you can learn the when and the why, you will be able to
make market movements work for you allowing you to
capture the majority of potential profit from the move. If you
are going to be successful at trading, you will need to
acquire a trading strategy that is easy to execute, easy to
understand, easy to obey, and that works for you
consistently. You will also need to master your emotions.
• Emotions are intense mental states that come from the
subjective mind instead of an effort or consciousness.
They usually manifest as strong feelings, such as love,
hate, fear, pleasure, happiness, pride, etc. Emotions
can be positive or negative. Negative emotions are one
of the main factors that cause trading failures. The
focus of the trader is mostly on fear, failure, greed, self-
sabotage, ego, self-destruction, etc.
• Positive emotions are the result of a desire for
happiness and success, such as when you have closed
a successful trade, accomplished a certain goal, or
finally solved a problem. When you experience positive
emotions, they can enhance your life and uplift you.
Negative emotions have a tremendous impact on your
mind and body. They will affect all your thinking
processes and become an obstacle to your trading.
• You can’t feel happy, confident, and peaceful when you
are having a negative emotion. You can’t be in control
either. The emotion takes hold of your mind and leads
to wrong assessments or decisions. Accept your
losses as part of the business. Learn from them, and
try not to repeat the mistake in the future. You should
prepare yourself by acquiring an adequate skill level
through the study of technical and fundamental
analysis, plus a sufficient amount of screen time.
• To avoid stress buildup, work with small position sizes until
your successful trades become consistent and steady.
When you start winning, even if small, you should reward
yourself in some way for the success. Learn from your
mistakes whenever they occur. Accept losses as part of
the business experience. Some traders even have more
losers than winners as a percentage, but they cut the
losses as soon as possible and let the winners run, so their
risk-reward ratio is high even if they win less than 50
percent of the time.
• Negative forces are overwhelming behavioral patterns that you
direct against yourself and that invariably will lead you to a loss.
• - Self-destruction
• - Doing too much
• - Distraction
• - Inefficiency
• - Poor discipline
• - Insufficient training
• Trader’s are seven capital sins:
• - pride,
• - avarice,
• - envy,
• - wrath,
• - lust,
• - gluttony
• - sloth
• FOREX trading has to be treated as a job, schedule that
accommodates in your life the best market hours for your
strategy, as well as the rest of your obligations—family,
maybe still a standard job, recreation, friendship, study,
and (most important) proper rest and sleep.
• A trader’s ten commandaments:
• - You can’t predict the future
• - Don’t be prejudiced
• - Be flexible
• - Trade with the main trend
• - Trust your analysis
• - Have a plan
• - Know “How much” and “When.”
• - Keep it simple
• - You will not get rich quick
• - Keep control
• The way we determine those risks depends on our
approach.
• Technical analysis is the study of price patterns and
volume fluctuations.
• The theory, which really can't be disproved, is that all
known 'fundamentals' are revealed in the price action of the
stock. Even if a company has a secret oil or gold discovery
on its property, as soon as someone finds out it will show
up in the price action of the stock as it goes up on
increasing volume.
Charles Dow
Born: November 6,1851,
Sterling, Connecticut
Died:December 14, 1902,
Brooklyn, New York
• The Fundamental Principles of Technical Analysis
are based on the Dow Theory with the following main
thesis:
• - The price is a comprehensive reflection of all the
market forces. At any given time, all market information
and forces are reflected in the currency prices. The
averages emphasize everything—the news, data, and
inclusively misfortunes or wars. This leaves us with a
clear view of the tendency of the market.
• - Price movements are historically repetitive.
• - Price movements are trend followers.
• The markets move in tendencies.
• Every market has a tendency, with these three
types:
• primary,
• secondary,
• tertiary.
• Primary trend. This trend usually lasts more than a year, and
movements are extensive and constant.
• Secondary trend. This trend can last months, but fluctuations
of this trend are included in the primary trend. Any corrections
that may have been made are one-third or two-thirds of the
previous section and are usually 50 percent.
• Tertiary or minor trend. These are variations within the
secondary trend.
• The market has three trends:
• -primary, secondary, minor.
• The primary trend has three phases:
• accumulation,
• run-up/run-down,
• and distribution.
• In the accumulation phase the shrewdest traders enter new
positions.
• In the run-up/run-down phase, the majority of the
market finally "sees" the move and jumps on the
bandwagon. Finally, in the distribution phase, the
keenest traders take their profits and close their
positions while the general trading interest slows down
in an overshooting market. The secondary trend is a
correction to the primary trend and may retrace one
third, one-half or two-thirds from the primary trend.
• The first stage of a bull market is referred to as the
accumulation phase, which is the start of the
upward trend.
• This is also considered the point at which informed
investors start to enter the market. The accumulation
phase can be the most difficult one to spot because it
comes at the end of a downward move, which could be
nothing more than a secondary move in a primary
downward trend - instead of being the start of a new
uptrend.
• This phase will also be characterized by
persistent market pessimism, with many
investors thinking things will only get worse.
• A new upward trend will be confirmed when the
market doesn't move to a consecutively lower
low and high.
• In this phase, investors who think that an economic recovery
is possible enter the market aggressively, considering that
this has a rising potential. These investors, who usually are
better informed, enter very aggressively when the currency
does not have the attention of the mass media. Even so, the
feeling is of discouragement and therefore is pessimistic. The
buying positions are accumulated by investors who are better
informed until the demand starts pushing, causing the quotes
to rise. These movements can be considered by the public in
general as a bounce from the bearish tendency.
• Phase of tendency or fundamental. This
phase is characterized by an improvement in the
economic conditions, where the buys by traders
are growing. In this phase, many traders realize
that a change has happened in the main
tendency, and they enter progressively. The
movements of this phase usually are ample.
• Phase of distribution. At this stage, the
economic conditions are usually very good. In
this phase, a large number of traders will enter
the market. Strong rises in the currency start
appearing in the media. Traders who entered in
the first phase begin to sell their positions
because they believe that the currency has
already gone too far and anticipate a fall.
• Phase of distribution. Traders who have been
participating in the increase from the start of the
first phase start unloading their positions. At this
time, the news is still good, and the market
correction that occurs is considered by the
public to be minor or intermediary inside the
rising tendency. In this phase, traders still wait
for a strong bullish movement.
• Phase of panic. In this phase, the selling strength is highly
superior to the buying strength, and the depreciations pile up.
Panic sells often occur. Traders usually will sell strong
positions to the market, provoking very sharp falls in which
many traders lose their money. After this phase, either a
sideways correction or a recovery of the bearish tendency
usually occurs, which is often minimal. In this phase, there is
usually a high volume in the descent that is often smaller than
the volumes that occurred in the rising phase.
• Phase of discouragement. In this phase, the news
about the currency starts getting worse, but it may not
have any influence on prices. Traders who are in this
phase are usually those who held up their positions
during the phase of panic or those who bought late,
believing that the prices were still low. The media stops
paying attention to the currency, and falls start
smoothing out.
• Principle of confirmation. The averages would
have to confirm a possible change of tendency,
as much to the upside as to the downside. The
movement in only one of the averages does not
confirm, in itself, a change of effective tendency.
However, you can see in advance how by using
two moving averages, you can confirm a
possible change.
• -Volume must confirm the trend.
• The volume moves with the tendency. The movements
in favor of a trend will always be accompanied by a
volume greater than the potential correction. If you are
in a bull-market phase, the volume will be increased in
the up moves and will be less in the descents. If you
are in a bear-market phase, the volume goes up in a
fall and declines in rises.
• - Trends exist until their reversals ar confirmed. The
tendency will be effective while there is no change
confirmation. This is intended to avoid premature
exits of a trend. A trend will continue its effectiveness
if there is no change in the averages. This allows us
to follow the advice: “Let profits run; cut losses
short.” A lateral trend or a possible correction does
not indicate a change in the main trend.
• We need to understand trends. First, it's
important to note that while the market tends to
move in a general direction, or trend, it doesn't
do so in a straight line.
• The market will rally up to a high (peak) and
then sell off to a low (trough), but will generally
move in one direction.
• The fundamental reason we look at charts is to
determine the trend. We can see at a glance whether
the market is rising or falling, but few casual observers
realize that the real trend is actually a pattern of
advances and declines. Once that pattern is discerned,
it usually persists for quite some time. This is the basis
for all investing- determining the primary trend and
trading with that trend and trading with that trend and
not against it.
• An upward trend is broken up into several rallies,
where each rally has a high and a low. For a market
to be considered in an uptrend, each peak in the rally
must reach a higher level than the previous rally's
peak, and each low in the rally must be higher than
the previous rally's low. A formal uptrend is when
each successive peak and trough is higher than the
ones found earlier in the trend.
• Recap- Course number 1:
• 1.What is the difference between gambling and market speculations?
• A)There is no difference.
• B)Both are based on luck.
• C)In market speculations we manage the risk.

• 2.How should we treat the Forex trading activity?

• A)As a gamble.
• B)As a leisure activity.
• C)As a job.
• 3.What are the fundamental principles of the Dow theory?
• 4.How many trend types did Charles Dow define?
• A)2
• B)5
• C)3
• 4.Name the trend types defined by the Dow Theory.
• 5.The “Primary Trend” lasts :
• A)6 months
• B)less than 12 months
• C)more than 12 months
• 6.Define the trends given by Charles Dow, on the EUR/USD pair charts; GBP/USD;
USD/CHF; USD/JPY.
• 7.Determine the accumulation areas of the above mentioned pairs on the chart.
• 8.Determine the distribution areas of the above mentioned pairs on the chart.