This month’s article is one that I have pondered and gone back and forth in my mind over. Is it something we should discuss, it’s certainly something I use. However, its context and origins are Gann related, but not directly, it’s not something that is specific course material that David provides guidance on so is this something a trader should arrive at organically?

Let me explain……

As a Gann trader we are labelled as forecasters and this label has many positive and negative connotations. If we break down any technical analysis in the main, we expect what has happened previously to occur again so by right everyone is forecasting a previous event to occur again. We take that notion deeply into our psyche that history repeats and this understandably requires conviction in your analysis to follow through, otherwise why are you taking the position?

Gann used rules around swing charts, and particularly commodities traders over the years used trading systems that meant they were in the market all the time. In simple terms once long, the next action would be based on a signal to not just close the long position, but too reverse to a short position.

Being in the market constantly at the right time can be hugely successful, in the wrong moment (sideways markets) it can churn positions, increasing trading costs and losses. It can escalate very quickly to a deep hole. I asked AI to tell me about Gann and using a stop and reverse strategy.

“W.D. Gann was one of the early pioneers of trend-following trading and frequently employed techniques that resemble modern stop-and-reverse strategies, although he did not use that specific term. His methods focused on identifying the prevailing market trend through price swings, support and resistance levels, and market structure. When a trend showed clear signs of reversal, Gann advocated exiting the existing position and, in many cases, taking a position in the opposite direction.

Unlike modern stop-and-reverse systems, which are typically fully mechanical and always in the market, Gann’s approach combined rules with trader judgement. Through his swing-chart methods, he taught that an uptrend is defined by higher highs and higher lows, while a downtrend is marked by lower highs and lower lows. When these patterns changed, traders were encouraged to reverse their position. As a result, Gann’s work is widely regarded as an important precursor to the systematic stop-and-reverse strategies used by trend followers and algorithmic traders today.”

So, the term is a newer one compared to Gann but in essence it’s from the same part of the trading toolbox, the more modern thinking came from Wells Wilder in the late 70’s in what we know as a parabolic stop and reverse (SAR).

In taking all that information, I am attempting to land us somewhere in the middle. In our Ultimate Gann Course Coaching we look for high probability turning points with price and time. We can often identify based on our rules a setup that has considerable technical attributes we consider strong; they can often line up in ways that we might consider perfect. They often deliver high reward to risk ratio setups, and sometimes they get you in and go the other way.

I visualise this in the same way as trench warfare, the quiet of the battle erupts, one side charges forward and crosses part way or even makes it to the other side (risk), this means momentum is with them and they continue the push. Other times they are ambushed and are pushed back to their own starting point (losses), or this can lead to a loss of more ground.

Unlike this example of warfare, as traders we are unrestricted in terms of changing sides, we can be disloyal to bulls or bears. The aim of the game is to be profitable, or let me simplify that, the simple aim may be to make back any loss from the initial trade and return to break even (stalemate).

One thing I learned to look for around time and price pressure was the order book, or what we used to know as market depth. This allowed some insight into what orders and size lay waiting to ambush us on either side of the trench. I also started to see that highly probable turning points started to attract deeper order books.

This has allowed me to analyse set ups and decide before hand if I might consider a stop and reverse strategy on the initial entry, this was discussed on an Oil ABC trade in Active Trader Program Coaching with Darren last month.

I see this very much as an analysis technique but much more so as a trade management technique, much like David’s intensive care rule. Now that I have introduced the concept that may or may not be new to you, I will continue to expand on this concept in future articles, as it’s something that I have chosen to use in recent weeks.

It is likely a hard one to juggle early on in your development, but as you progress it’s a very handy skill set when executed well.

Good Trading

Aaron Lynch