SimCast Ep. 17 – Wei “Valckrie” Turns $1500 into $600k in 1 Year!
Tag: day trading
Wei’s Journey to Profitability
Wei, also known as “Valckrie” on Twitter, is a software developer turned day trader. He got started during the Covid pandemic of 2020. After reading a few books on trading, watching youtube videos, and paper trading for 3 months, Wei jumped in.
Unfortunately, like most, Wei lost money to begin with. He refunded his account 7-8 times, he says. However, by January of 2021, Wei started to hit his stride, and the rest is history.
From a meager $1500, he has amassed over $600k in about a year, give or take.
Wei’s Kinfo Statistics
Wei’s Style of Trading
Wei is an intraday scalper. As you will see in the video, he typically trades break downs or break outs based on the chart. He starts with a larger time frame, then dials into the smaller time frames to judge his entries.
Wei “Valckrie” is also very calculated about his risk to reward. He believes in the Kelly Criteria for position calculating and managing risk.
Small caps or large caps, Wei doesn’t really care. He will trade whatever has momentum.
The Importance of Community and Mentorship
Mentorship and community have been important to Wei’s development. He credits videos from prop firms like SMB and 7 Points Capital, as well as Nate from InvestorsUnderground.com and Stephen Dux.
According to Wei, mentorship doesn’t have to be a 1-on-1 experience, but virtual in the sense that you can use the mentor’s material to guide you on your own.
SimCast Ep. 17 Topics and Chapters
Wei’s start in trading – 1:04
Transitioning from paper trading to real money – 4:00
Managing emotions through risk management – 7:15
Wei’s thoughts on mentorship and chat services – 15:20
Taking losses & the importance of review – 19:25
Wei’s P/L in January 2022 $150k – 28:30
Trade Recaps – 30:40
Where Wei puts his stops – 35:32
Wei’s long trades – 52:10
Hard stops vs. Mental stops – 55:00
2022 Goals and Beyond – 58:18
This is a fun question, isn’t it. What’s your trading personality? Are you a home run hitter? Are you a snatch-and-grab scalper? Perhaps you’re too laid back for the fast pace of low floats or trading the open? Maybe you’re contrarian, pessimistic, optimistic? Lone wolf or life of the party on Discord?
All these things are just a few examples of what your personality might look like in trading.
Why Trading Personality Matters
The first question you should think about is why this even matters. The importance of it is rooted in your own mental and emotional wellbeing.
According to Dr. Brett Steenbarger Ph.D., we want our actions to be aligned with our ideal self. In other words, how we imagine ourselves should line up with the reality we act out. It’s where motivation typically comes from.
For example, if we are working at a job that doesn’t align with what we consider our ideal self, we might suffer negative emotion or lack of motivation.
Trading is no different.
The issue is that trading education is the wild west. It’s a bit of a two-edged sword. You have plenty of free resources nowadays, and access to many successful traders. However, choosing a methodology that fits with your personality can be altogether confusing.
Nonetheless, discovering what fits with your “ideal self” may benefit you in the long run.
The Psychology Behind Trading Personality
Your trading personality may actually be a deeper subject than simply creating an avatar of who you think you should be. Dr. Steenbarger has done studies on this very thing.
In one study on trading performance and personality traits, Steenbarger found correlations with his own research. The reference study found that two groups of personality traits do better than others. Those traits were:
“1) Relaxed, risk-averse traders who avoid regret, dislike sensation-seeking, and show type-B (non achievement oriented) behavior;
2) Traders who were controlled risk takers: high in both self-monitoring and sensation seeking;”[efn_note]https://traderfeed.blogspot.com/2007/01/personality-of-trader-how-it-affects.html.[/efn_note]
What Steenbarger found was that Type A, competitive personalities were the least successful at trading. He surmised that a “relaxed personality” might be more productive in trading than those who are more driven.
Ultimately, what may matter the most is simply having clarity of mind while trading, regardless of your personality.
It may well be the case that clarity of mind–not personality per se–is the most important psychological determinant of good decision making and trading profitability.
Dr. Brett Steenbarger Ph.D.
We’ve written before on trading psychology if you’re interested in that read. That being said, let’s pick apart some of the more prominent personality characteristics, and what they may mean for you.
1. The Regretful Trader
Let’s be honest, do you beat yourself up when you make mistakes? If so, you may be susceptible to this.
It’s important for you to feel a sense of positivity and accomplishment. As humans we need this. If your trading is getting you down, there a few things you might consider.
Perhaps your regretfulness is a byproduct of other limiting beliefs from your past. There are ways to work on this with trained counselors and performance coaches. We discuss these in our podcast with Créde Sheehy-Kelly.
It is important to have proper expectations of your trading education journey as a whole. Be sure to check out our discussion on this topic here.
Consider spending more time in a simulator until you’ve found that your equity curve for a given strategy builds your confidence rather than your regrets.
2. The Self-Aware Trading Personality
Are you the type of trader who is always thinking about what you’re thinking about? Psychologists call it “self-monitoring.” This can actually be a very good thing for traders.
When you are self-aware, you are typically in control of your emotions. Perhaps you’re able to overcome impulses by being conscious of your own self-sabotage. Of course, no one is fool proof or immune to the pulls of the flesh, but at least you’re on the right track.
If you lack this trait, it may be beneficial to start a mindset journal while you’re trading. Sounds cheesy, but it might bring awareness to thoughts and actions you often overlook. Forcing yourself to document your emotions and audit them at the end of day can do wonders for your self-monitoring.
Ultimately, you’ll want to set goals that are tangible for yourself. If you find that you struggle with anger, revenge trading, or any other bad habit, take note of it. Then create a process-oriented task list of ways to mitigate the known habit. Check it each day.
Maybe this includes breaks, yoga, walks. Anything to shift your focus from the moment to a more introspective observation will help.
3. The Thrill Seeker
Is this your trading personality? Are you the guy that does double gainers off the diving board? Bungee jumping? Adrenaline junkie?
Even if you don’t take thrill seeking to those extremes, you might be seeking the thrill of trading because you don’t get it elsewhere. Think about it terms of your heart rate when you trade. How many times have you put on a position and your heart races?
This really shouldn’t be the case if you’re being disciplined. It also shouldn’t happen if you seen the same trade a thousand times before. You already know the potential outcomes.
Granted, there may be those times that you want to go heavy in a trade that is picture perfect. However, if you’re managing risk and systematically scaling up your account, you’ll find that you only risk a certain amount every trade. When you define these parameters, your trading becomes systematic and boring.
We’ve discussed this concept with recent traders in regard to Kelly Criteria and position sizing. If all you want is fast profits, be careful. The best traders manage their emotions through position sizing, not thrill seeking.
4. The Calm, Risk-Averse Trader
According to Steenbarger, “The interesting finding of the pilot research summarized above is that group one–the relaxed, risk-averse traders–performed as well as the conscientious risk takers.”[efn_note]https://traderfeed.blogspot.com/2007/01/personality-of-trader-how-it-affects.html.[/efn_note]
We like to think of this like the trader with a strong poker face. You know your probabilities for success, you know the potential outcomes, and you aren’t moved by wins or losses. Trading has become a game of probabilities to you.
Knowing this is true, it allows you to relax. Once you’ve discovered your edge in the markets, it becomes a habitual experience. Sure, you’re in the market to make money, but the intangibles of profit and loss don’t bother you. You’re more focused on simply trading the process.
To that end, you’re prone to cut your losses quickly and use incremental sizing. You’re risk averse. Usually this keeps you in the game longer.
Other Trading Personality Considerations
We’ve covered some important psychological traits of traders, but there are certainly other aspects to your personality to consider. The great thing about trading is that it usually causes all of your little personality flaws to surface.
Here is just a short list of things trading will bring out of you:
Resentment
Frustration
Revenge
Fear
Greed
Elatedness
Depression
Anxiety
Negative self-talk
Confidence
Pride
Arrogance
It really runs the gamut, the type of emotions you will experience in trading. How you handle them will all depend on your own personality. Are you disciplined outside of trading? You’ll likely be disciplined in trading.
All of these things you should consider as you take the time to discover what works best for you. Don’t depend on anyone else’s style. They may have a different personality than you.
Find what fits. Monitor yourself. Seek your ideal self in all that you do.
Who Is Kris Verma?
Kris Verma is a successful pharmacist and sports better turned day trader. After retiring from being a pharmacist, Verma decided to apply his statistical edge in sports betting to the markets. The result has been stellar, with over $1million in profits in just a few short years.
Kris Verma is a statistician of sorts. His approach to trading and betting is deeply rooted in mathematics. As the saying goes, an edge is nothing more than a probable outcome in your favor. Sure, you’re going to lose some, but as long as the winners outweigh the losers over time, you come out on top. Verma has taken this to a whole new level.
The Kelly Criteria and Verma’s Formula
On Kris’s blog, he discuss the basis for his formulaic approach to the markets. It is based upon the Kelly Criterion, which allows Chris to calculate his statistical edge and optimal position sizing according to backtested data.
Kelly Criteria Chart
As you can see, there is a point of diminishing returns if you size in too much (blue line). Optimal position sizing keeps your risk (volatility) in check, if your data is accurate. Kris mentions this at time stamp 53:18 in the interview.
In the video, Kris shares a link to a template for his strategy in a spreadsheet. You can find that link here:
Whether you’re a complete newbie or you’ve been trading for some time, you have likely experienced fear and other emotions while trading. If you haven’t, you might be robot. It’s natural to experience these things because we are human and subject to the pulls of the flesh. In this post, we’ll uncover 5 ways you can overcome fear and emotions in trading.
The Root of Fear and Emotional Problems in Trading
As humans, we are naturally predisposed for certain emotions. Psychologists often label these with cute labels like scarcity bias or one of a myriad of other biases. To them, we are subject to the habits ingrained in our dna.
For example, we are prone to think as humans that if we don’t store up for hard times, we might not have enough to get through the winter, or drought, or famine, or whatever. As our ancestors were more agrarian than we are today, we have a tendency to associate other aspects of our lives with similar biases — like trading profits instead of crops.
In a similar way, if we suffer loss, we are likely to take what little gains we come across more quickly the next time. Think about losing a girlfriend, or a loved one. It may traumatize you to the point that you want to “cling” to the next potential suitor more tightly than the last.
Unfortunately, the very thing that we are wired for can often times sabotage our intended outcomes. By clinging to the next lover too closely, we might actually push them away.
It’s not different in trading.
If we suffer a few debilitating losses, we are wont to “cling” to whatever gains we have the next time. The end result is that we cling to our profits too quickly and thereby continue “pushing” our lovers (potential gains) further and further away.
How to Fix the Issue of Fear and Emotions in Trading
Well, it isn’t as easy as one might think. It’s often quite painful actually. However, the antidote is often in the sickness itself — much like any disease.
Think about it this way. To become immune to something, what has to happen? Exactly, you have to get sick. You have to be exposed to something repeatedly in order for your body to build up immunity to it. It’s like this with viruses, bacteria, cold weather, callouses on our hands, etc.
The goal is to normalize the pain in an effort to make more sound decisions. In the case of the clingy boyfriend, the loss of your lovers will eventually teach you to let go a bit and give them some space. Jealousy is the cure for itself.
Trading losses will over time cure your habit of fear in one of two ways:
It will teach you that your fears are irrational with enough experience.
You will eventually find another line of work once your capital is completely expended.
One way or another, you’ll learn that fear isn’t profitable.
That being said, there are a handful of ways to proactively train yourself to mitigate the fears associated with trading.
1. Mitigating Fear and Emotion in Trading through Education
We humans have a big ego. Whether we realize it or not, we think we can jump right into something we know nothing about and become an overnight expert. Just like the little kid who sees his dad wielding a sledge hammer with ease, we think we can pick it up and do the same thing. “Go ahead, son….”
Little do we realize that more often than not, when we think we know something, we actually understand very little.
This is where education can help. Often times, awareness is the beginning of our enlightenment and path toward freedom. In trading, this can come through the help of books, courses, or free online content.
Trading Education Books
The great thing about pretty much any line of work is that usually someone has gone before us and made the mistakes. Not only have they made the mistakes, but many have documented their mistakes. And in this day and age, we have information at the tips of our fingers. So, why not take advantage of that?
The more you learn about technical analysis, other traders’ successes and failures, and the many pitfalls of the human mind, the more you’ll be prepared to face your own demons. We discuss a lot of topics in our blog here at TradingSim.com, but there are a ton of free resources on the web to help you as well.
2. Learn and Master a Single Strategy to Overcome Fear
Prop trading guru Mike Bellafiore is famous for teaching his traders to make “one good trade.” That’s all it really takes to get rich in trading. It’s so important, he framed it and hung it inside the prop firm.
From SMB Capital Prop Firm
Mastering a single strategy is a lot like getting married. You learn more about a person when you marry them, live with them day in and day out, commit to them for the long haul. Traders who don’t commit to a single setup often times suffer from “style drift.” Eventually, they begin to doubt their ability to succeed at trading.
Like a fickle relationship, they give up on the strategy when it isn’t doing well for them.
The problem with this, just like in relationships, is that you never find a deeper understanding of the strategy. You only stick around during the good times. But like life, the good and the bad always ebb and flow. Instead of becoming a master at something, you become mediocre at a lot of things.
Adapting with the Changes of the Market
Mastering a strategy isn’t an excuse for ignoring other opportunities for success, or variations to your strategy. It is simply an opportunity to reduce the amount of fear you have through deep familiarity.
By all means, study another strategy once you have mastered one. But understand that true confidence comes through mastery, and that can only be had through focus. It won’t come from mimicking another trader, or following an alert service.
It only comes from mastering something so well you could do it with one hand tied behind your back. (Assuming you could click the buy and sell button with the other hand….)
3. Practice Trading to Increase Confidence and Eliminate Fear
Practicing trading is akin to back-testing. Both have their place along the path to confidence in trading. There are two reasons for this.
Practicing trading builds situational awareness and pattern recognition
Back-testing (and outcome testing) provide statistical evidence of an edge
Both of these are the ingredients you need in order to eliminate fear. Why? Because you no longer have uncertainty about your edge probabilities.
We discuss how to find an edge in other posts, but suffice it to say that you need one in order to mitigate fear of trading. As humans, we want certainty in life. We want a paycheck. We want to know we’ll have food on the table, a roof over our head, etc.
“When you achieve complete acceptance of the uncertainty of each edge and the uniqueness of each moment, your frustration with trading will end.”
Mark Douglas
Trading is never certain. Period. Accept it.
Acceptance of the Risk Eliminates Fear and Emotions in Trading
An edge is a probable outcome that favors you over time. It doesn’t mean you’ll never suffer losses. Sometimes the best traders lose many more times than they win. However, they understand that their wins will far exceed the small losses that they take.
It’s all a game of risk management and knowing the outcome will take care of itself over time.
Without accepting the risk involved, or knowing the statistical edge you have, you’ll remain mired in fear. You’ll take losses much bigger than you need to, and you’ll take profits much sooner than you want. It’s that simple.
Practice trading in order to train your mind and develop your statistical edge.
4. Start with Smaller Size to Decrease your Anxiety in Trading
Improper sizing is often the #1 culprit for destroying your account. It’s true. You want success so badly that you think you’ll get there faster if you just “size up.”
Ironically, the very thing you want becomes your Achilles heal. It’s like the old adage of wanting to run before you walk. You have to start slow and incrementally increase your size as your account, consistency, and most importantly, knowledge, begin to grow.
In a recent SimCast interview, we spoke with Kris Verma about how he uses the Kelly Criteria to properly calculate a position or stake. If you haven’t had a watch, it’s really eye opening.
But whether you use an R factor for your positioning, or calculate a 1% account stop loss for your stake, the more you respect this, the more you’ll overcome fear.
Size up too much and the volatility of your account becomes too big for your emotions to handle, as shown in this chart:
Kelly Criteria for Optimal Position Sizing
As you can see, as you increase your Kelly stake from a full “1.0” size, the more your returns diminish and your volatility increases. Take the goldilocks approach and start out conservative. Prove to yourself the right to earn more size based upon your back tested data and performance consistency.
For a basic formula to calculate your Kelly Criteria, click on Kris’s free spreadsheet:
5. Trust Yourself. Let the Game Teach You to Overcome Fear and Emotions in Trading
This sounds simple, but it’s not. As a new trader you’re going to have your eyes all over the place: on twitter, on a guru, in a chat room, on your charts, etc. The best place to have your eyes is on the market and on yourself.
Learn to trust your personality. Trade in sync with it. If you need fast gains, then maybe scalping is your jam. If you are a slower mover who needs big wins, then maybe swing trading or longer day trades will work for you.
Whatever your personality, fine tune it with what the market is telling you. It’s ok to study gurus in your spare time, in fact it is recommended, but allow the market to teach you in real time or in simulation. You’ll be amazed at how much more confident you become when you stop the distractions and get a “feel” for the market.
To that end, you must eventually trust your trading instincts. By this, we don’t mean your whimsical guesses. No, when your education is complete, and your practice is sound, you will have confidence in your own ability to read the market.
Be in tune with it, and trust yourself.
Conclusion
If you find yourself struggling with fear and emotions in trading, by all means do something about it. Realize this is a long game, not a short game. Learn to enjoy the process of education and mastery. Many of the most successful traders took 5-10 years before they ever began making wealth in the markets.
To help along your journey, jump into the simulator here at TradingSim and find your confidence!
Despite what you may have been told, simulation trading can increase your chances of becoming a consistently profitable trader. It’s all dependent upon on how you use your time in the software. Here’s why.
As we’ve covered in recent articles on the top 4 simulators with replay, and the big myth behind paper trading, if you come to trading as a beginner with the attitude that simulation doesn’t correlate with real-world performance, you’re misguided. However, if you simply use simulation trading for fun, or in an undisciplined and unstructured way, you’ll likely never reach the potential you wish for. That is, not without a lot of loss and heartache and time spent.
This is the type of thing that comes with passion. Are you passionate about studying the markets and putting in the time and effort needed?
If you’re motivated to learn and master markets, you’ll enjoy simulation and playing with trading ideas. If you’re motivated by making money and showing off pictures of your new cars on social media, simulation won’t hold much appeal.
When surgeons learn new techniques, they practice on models and cadavers before “going live”. If a surgeon told me he didn’t think such practice was important, I’d likely look elsewhere for my procedure….
Dr. Brett Steenbarger, PH.D.
To that end, we want to help you shorten your learning curve by discussing four best practices for simulation trading that will likely increase your chances of success.
Simulation Trading Best Practice #1: Screen Time and Exposure
There is one thing all stock educators and gurus agree upon. The amount of screen time you accumulate studying the markets will likely correlate with your understanding of trading. It might not cause success, but it will certainly help.
The more screen time the better. Don’t take our word for it, just listen to Jack Tacher in our recent podcast talk about how many 1000s of charts he reviews. Well, we couldn’t agree more. But the problem is that there are only certain hours of the day in which you can trade markets. The New York Stock Exchange opens at 9:30am and closes at 4pm.
What if you are getting into trading part-time? Can you really put in the focus you need when your boss isn’t watching your cubicle? It’s hard to place trades while waiting tables, building a house, or meeting with clients.
Simulation Trading Is Available On Your Schedule
While not all simulators will allow you to trade in a realistic market environment outside of normal trading hours, TradingSim, does. We’ve also reviewed a handful of other simulators with replay here. The benefit of these applications is that you can essentially push play, like a DVR, and study the markets in the evening, the weekends, or whenever you want.
Regardless of whether or not you can trade the open, it allows you even more screen time. Perhaps you didn’t see certain stocks that ran during the day. After all, you only have so many screens and so many eyes. But the market has 1000s of stocks.
Simulation trading allows you to go back and see what you missed with the intention of finding these opportunities better in real time.
This leads us to our next point: the importance of review.
Simulation Trading Best Practice #2: The Importance of Review
If screen time is a prerequisite for success, then review has to take the #2 spot. It’s imperative. How else will you know where you went wrong?
Reviewing trades and performance reveals so many underlying issues with our trading that are simply overlooked in the heat of the moment.
Dr. Brett Steenbarger has this to say about reviewing trades:
Good reviews give you fresh views. Good reviews help you see new things in the markets you trade and in how you’re trading them. If reviews aren’t providing you with insights, they probably aren’t providing you with learning.
Dr. Brett Steenbarger Ph.d.
Along those lines, one of the best ways to review is to get into the simulator and replay the market. Replay your trades. Relive the experience. Observe what’s going on around you in an effort to discover insights and new ideas. Watch the Level 2, Time and Sales, or other key elements of the trade to find patterns and key areas.
How to Use the Simulator for Review
According to Steenbarger, there are three things you should be aware of when reviewing trades.
Don’t review too much
Create actionable insights
Revisit your goals and takeaways
This sounds really simple. However, many traders create information overload by observing and reviewing waaaay too much data. As we will touch on in a moment, the goal of the sim is to boost your confidence in a strategy. For that reason, be focused in a specific area of the market.
Good review doesn’t really do much for you if you don’t takeaway insight from that review. Watch your trades in replay, study the Level 2, but make notes about certain things you see. Was there a large order being pulled before the flush? How did volume react at certain levels or certain times? Make notes for your next trades.
Lastly, keep your notes and your progress handy. The point of goals is to achieve them. But without incremental steps and a solid process, goals become elusive. Remind yourself to check in with your progress on the action items you create from reviewing.
Simulation Trading Best Practice #3: Backtesting Patterns in the Market
This best practice is an extension of the first two. You’re not going to discover a pattern overnight. Sure, your guru may have found a pattern, but how do you know it works? Did you see her excel spreadsheets? And more importantly, how did she find that pattern?
The bigger question, if you have some sort of pattern in mind (and there are many…), is how you will know the probability of its success. What makes that pattern work? What makes it fail. Herein comes the need for a simulator.
As successful traders like StockBee and Qullamaggie have written, a simulator allows you to see 100s, if not 1000s of patterns in the market. In other words, backtesting. On that token, we’ve written an article about how to find a setup of your own. We’ll share a few tidbits from that article.
Things to Consider When Backtesting Your Strategy in Trading Simulation:
Is your personality suited for the long or short side of trading?
Do you like swing trading or shorter term daytrading?
What patterns do you see on your charts? Gap and go? Gap and fail? Mean reversion?
What is the float, market cap, price, and average volume of the biggest winners?
If day trading, what time of day does your setup work best? Worst?
Does volume predict anything in your setup? Compared to float?
What about short % of float should you consider?
Do fundamentals like potential offerings or dilution have any affect on your strategy?
What do you observe in the tape intraday during the pattern you have observed?
How do your successful trades’ charts look visually in comparison to each other?
No one will be able to tell you exactly what to look for. That’s the beauty of what we do. It takes hard work, time, and effort to find something in the market that you think is exploitable over and over again. That’s what we call an edge.
That being said, your edge may change depending on the market. But your goal in trading simulation is to discover the strategy, then add to it.
Simulation Best Practice #4: Trade Execution Refinement
This occurs after you have found your setup. Similar to review, this is actually a specific element of review.
The more granular you become in your backtesting, the more confident you will become. Most retail traders simply have no clue what they aren’t seeing. They take another trader’s advice and run with it.
You, on the other hand, if you’re diligent, will know what triggers your entry, what rules you need to follow, when you will need to stop, and more. It is a more complete picture of the trading process.
Think about it this way:
The best professional performers on any stage often know multiple layers of “what ifs” before they perform. What if I lose my lines on stage? Could the patient’s blood pressure drop during surgery. What if the defense moves in this direction before I snap the ball? Could the enemy surprise us from this location, or that location?
You get the idea. You’ve either been there and done that before you’re actually “there,” or you’ll be surprised. It’s no different with trading.
Trading Simulation gives you the confidence in a safe training environment to study all the variables and nuances of what could happen.
Refinement Criteria to Look for in a Trading Simulator
Here are a handful of examples of what a simulator can help you with in regard to refining your trade process:
Entry trigger/criteria based on volume/price/indicator/condition
An area to define risk (setting your stop out)
Rules for trade management
When to add to a winning trade
Profit Targets
Exit criteria
Larger time frame points of support/resistance
Influence of news, sector, or fundamentals
Caveats to your rules
Anomalies
As you can see, there is more to just finding a pattern and going long or short. You need to paint the picture in your mind of all the different characteristics of what could go wrong. You need to be prepared for anything. At the same time, you must have a vision for what the trade should look like.
This takes time. Trading simulation shortens that time.
Conclusion
We hope you find this information useful. In order to help you along your journey, we’ve created tons of free educational information on different types of patterns, indicators, and strategies. If you’re new or considering TradingSim, we offer a 7-day risk free trial.
Maybe it’s time you get in the Sim and find your edge?
Considered one of the “titans of technical analysis,” Gann and his Gann Square have gone down in trading history with the likes of Dow, Wyckoff, and others. In this post, we’ll give you a brief introduction to Gann and why his techniques are important.
Gann
Who is W.D. Gann?
The trading concepts used by William Delbert Gann, or W.D. Gann as he is fondly called, bring feelings of intrigue and mystique.
He is primarily known for his market forecasting abilities, such as the Gann square of nine which combine a mix of geometry, astrology, and ancient math techniques. Gann started trading at the age of 24 and was a religious man.
Gann was also a 33rd degree Freemason [1], to which some attribute his knowledge of mathematics and ratios.
For the most part, Gann’s works have been open to interpretation. Therefore, to trade based on Gann’s methods requires extensive practice and understanding.
Understanding Gann
Unlike trading with technical indicators where you can buy or sell when certain variables are met, trading with Gann’s methods is not as straightforward. This is because learning the methods takes time. You can’t just apply a few moving averages to the chart and give it a go.
The other challenge is that there are few clear Gann trading strategy experts to learn from. The only one we are really aware of who offers a public service is Jeff Cooper from T3Live.com. You can find Jeff on Twitter at @JeffCooperLive. He offers his own instruction on the Gann Square.
Among the many trading methods known to Gann, the square of nine is quite popular.
What is the Gann Square?
Squares, circles, and triangles are the three most common geometric shapes that form the basis for most of Gann’s work.
Gann’s wheels and squares are some of the most common applications and form the cornerstone of Gann’s work.
For example, Square of nine, Square of 144 and the Hexagon are some of the many works from Gann that are popular.
How to construct the Gann square
Square of Nine
The square of nine or Gann Square is a method which squares price and time. The Gann square of nine gets its name because if you look at the above chart again, the number 9 represents the completion of the first square.
The square of 9 is a spiral of numbers with an initial value “1” starting at the center. Starting from this value, the number increases as we move in a spiral form and clockwise direction. According to experts, each cell in Gann’s square of nine represents a point of vibration.
How to Calculate the Square of Nine
The numbers within the Gann square of nine also follow a certain harmonic pattern. For example, when you take a number, such as 54 from the above square, the value to the next of it (to the right), 29, is derived as follows:
The square root of the number and subtract 2, and re-square the result.
Ex: 54 is the original number
The square root of 54 = 7.348469
7.348469-2 = 5.438469
(5.438469)2 = 29 rounded off
To determine the value to the left, instead of subtracting 2, the number is added. So, we simply add +2 to the square root of 54 (7.348469), bringing the value to 9.348469. We then square this result to get a value of 87.
How does the Gann Square work?
The Gann square of nine helps to identify time and price alignments in order to forecast prices.
In the Gann Square of nine, the key numbers of importance are as follows:
0 or 360 degrees: 2, 11, 28, 53….
45 degrees: 3, 13, 31, 57, 91…
90 degrees: 4, 15, 34, 61, 96…
180 degrees: 6, 19, 40, 69…
Cardinal Cross and Ordinal Cross
The next sets of important numbers fall within the cardinal cross and the ordinal cross.
The picture below shows the cardinal cross, represented in the blue horizontal and vertical lines. The ordinal cross numbers are represented in the yellow cells.
The numbers that fall in the cells represented by the cardinal and ordinal cross are key support and resistance levels.
While both are important, the ordinal crosses are of less significance and can be breached at times.
Gann Square – Cardinal and Ordinal Cross
The most important numbers as we know it occurs every 45 degrees on the nine chart.
Each degree is a representation of time.
Above is a standard 1×1 chart. As an example, if price made a high of 54 on the day, if price retreats, the next support is 29, as it is the next closest number across the square of nine.
Circle Around the Square
Also, drawing a circle connecting the four corners of the squares brings the concept of angles into perspective. The angles, measured by degrees can point to potential support and resistance levels when the price is said to be moving within an angle.
The chart below shows the Gann square of nine with the circle plotted around it.
Gann Square of nine with the circle, introducing angles and degrees
Using the Gann Square
To use the Gann chart, simply replace the starting number 1 with a number of your choice and the desired step value. In the above example, the increment is 1, but you could use larger or smaller values.
Based on this information, traders can look to either buy or sell into the nearest support or resistance level.
Gann’s square of nine also factors in planetary movements and the degree of price movement based on the circle.
There is a big difference between forecasting prices and trading. For example, one can forecast that the Emini S&P500 will rise to 2100 within a certain period of time. What the forecasting won’t tell you is whether the move to 2100 will be straight, or if the price will fall by a significant number of points before rising to 2100 and so on.
These might seem insignificant when it comes to forecasting, but they can be the very things that can define a successful or a bad trade.
Additional Resources
To go deeper on Gann trading strategy, check out this awesome interview covering Gann and swing trading. The video is close to an hour and provides additional insights you can use to help develop a Gann trading plan.[2]
Lastly, if you are looking for original Gann teachings, please visit https://www.wdgann.com/. This is the site for WD Gann, Inc. which according to their site, purchased the original Gann writings from his business partner Ed Lambert in the 1970s. [3]
