W.D. Gann: Truth or Myth

If you’ve spent any time at all around technical stock analysis, you’re likely to have run across the shadowy figure of W. D. Gann. If you haven’t heard him, here’s a quick summary. He was a commodity and stock trader who first came to the world’s attention in the first years of the Twentieth Century because he was making a fair amount of money and attributed his success to a secret technical analysis method which he had developed himself. His system was based on geometry, astronomy and astrology, and ancient mathematics. He claimed he had developed his system, with the help of deep readings of the Bible, over the course of a ten year search for market understanding which included trips to London, where he analyzed one hundred years of market history, and to Egypt and India, where he sought ancient knowledge.

He quickly became a phenomenon. And he did, in fact, make a great deal of money. As a demonstration he famously parlayed a $300 stake into $25,000 in three months and $130 into $12,000 in 30 days. He also made some very specific predictions on stock and commodity prices, and world events, which came true. He did well enough to own the first metal airplane in the United States. His classes and writings brought enormous prices, the most advanced class going to 50,000 in current dollars. While his system was mysterious and secret, it was in large measure based on a something called Gann Angles, a system of creating a first derivative of price history and using that to predict inflection points.

Gann lost most of his fortune after a period of trading using financial astrological methods and died in 1955. There is today a healthy cottage industry centered on Gann, and hopeful traders continue to study his methods and use them in the market. The Gann industry is apparently thriving, with a $1,499 price tag for Private Ephemeris 1941 – 1950 (presumably his notes, correspondence and the like) and his Recommended Reading List, available for $323, marked down from $400.

So, W. D. Gann: truth or myth? Most analysts agree that his methods are invalid on the face of it, on both empirical and theoretical grounds. While there are now and have always been traders whose tactics and strategy are based on a whole range of what might politely be called “heterodox methods” – ranging from superstitions to elaborate systems of mystical and outlandish calculations – most of us draw the line somewhere this side of financial astrology and stock prices charted with the help of ancient esoteric diagrams. But it’s an exciting possibility that there’s a hidden cabal of insiders using secret and arcane systems to become rich beyond the dreams of avarice, and even those of us with Mr. Spock’s confidence in logic indulge the occasional fantasy of discovering the secret and joining them.

Obviously there’s a great deal of movement in stock and commodity prices that can be explained by knowable and mundane factors, like earnings reports and harvest predictions, without recourse to astrology and ancient mathematics. On the other hand, is it possible that there some price movements have to do with cognitive and emotional factors the behavioral economists know about? Absolutely! Is it possible Gann’s angles, however derived, might accurately describe such math? Well, it’s not impossible. On the other hand, if there really was an accurate stock market predictor the world would be a truly radically different place.