Gann Trading Rules

Introduction

Gann gave very clear rules for buying and selling stocks. These rules are simple, but they go against what most people do. Most people like to buy a stock because it has fallen a lot and looks cheap. Gann said the opposite: buy strength and sell weakness, and always follow the trend.

Gann's 7 Rules for Trading Stocks

Rule 1: Buy at new high prices or old top levels

When a stock crosses its old high, it shows buyers are strong. Gann said this is one of the safest places to buy.

Rule 2: Buy when prices advance above old low levels

If a stock had a previous bottom and then rallies above earlier lows after a fall, the trend may be turning up.

Rule 3: Sell when prices decline below old tops

If a stock breaks back below an old top it had crossed, the breakout has failed.

Rule 4: Sell at new low levels

When a stock makes a new low, the trend is down. Never buy just because it looks cheap.

Rule 5: Wait for the closing price

Gann said it is safer to wait for the price to close above an old high or below an old low, not just touch it during the day. Prices often cross a level during the day and then fall back by closing time.

Rule 6: Always use a stop-loss order

Place the stop-loss when you make the trade, not later.

Rule 7: Know how much capital you can risk

Never risk too much on one trade. You will learn Gann's capital rule in the next lesson.

Example: Rule 1 with an Indian Stock

Suppose Tata Motors (illustrative prices) has made tops at Rs 780 three times in four months. Today it closes at Rs 792 with high volume.

• Gann's rule: buy after a close above the old top, preferably a little above it.
• Entry: Rs 792. Stop-loss: below the old top, around Rs 770.
• Gann also said that after a breakout, the price often comes back to test the old top. A pullback to Rs 780 to Rs 785 is another safe place to buy, with the stop-loss below it.

Example: Rule 4 with Nifty

Nifty has been holding 23,500 as support for weeks. One day it closes at 23,380, a new low for the move. According to Gann, this is not a buying opportunity; it is a warning that the trend is down. A long-term investor may wait, and a trader may avoid fresh buying until the trend turns.

Gann's Warnings

• Never buy a stock just because it is low. There is usually a reason, and it can go lower.
• Never sell short just because a stock is high.
• Never fix a target in your mind based on hope. Let rules decide.
• The longer the time a stock stays below an old high before breaking out, the bigger the move after the breakout.

Apply These Rules on GoPocket

On the GoPocket app, use daily and weekly charts to mark old tops and bottoms. When a stock closes above an old top, place a Delivery Limit buy order and immediately add a stop-loss sell order. If you plan in the evening, place the order as an AMO.

Frequently Asked Questions

Is buying at a new high risky?

Gann believed it is less risky than buying a falling stock, because you are going with the trend. A stop-loss controls the risk.

Why wait for the close?

Because intraday moves can be false. The closing price shows where buyers and sellers finally agreed.

Key Takeaways

• Buy at new highs, sell at new lows.
• Wait for a close above or below key levels.
• Always use a stop-loss.

Disclaimer: Prices are illustrative. Not a recommendation. Investments in the securities market are subject to market risks.