We believe the most important thing a beginning investor can learn is capital management. A part of the Investigator philosophy is that you cannot predict the market, you can just play the odds. You should always protect yourself against losses in the market. With this in mind, we give you the ideas of a man who traded decades ago. While we don’t believe in all of his rules, they are certainly great guidelines that have stood the test of time.
Gann's Twenty Four Never Failing Rules
1. Amount of capital to use: Divide your capital into ten equal parts and never risk more than one-tenth of your capital on any one trade.
2. Use stop loss orders. Always protect your trade when you make it with a stop
loss order 3 to 5 points away.
3. Never overtrade. This would be violating your capital rule.
4. Never let a profit run into a loss. After you have a profit of three points or
more, raise your stop loss order so that you will have no loss of capital.
5. Do not buck the trend. Never buy or sell unless you are sure of the trend according to your charts.
6. When in doubt, get out, and don't get in when in doubt.
7. Trade only in active stocks. Keep out of slow, dead ones.
8. Equal distribution of risk. Trade in four or five stocks, if possible. Avoid tying up all of your capital in any one stock.
9. Never limit your orders or fix a buying or selling price. Trade at the market.
10. Don't close your trades without a good reason. Follow up with a stop loss order to protect your profits.
11. Accumulate a surplus. After you have made a series of successful trades, put some money into a surplus account to be used only in an emergency or in times of panic.
12. Never buy just to get a dividend.
13. Never average a loss. This is one of the worst mistakes a trader can make.
14. Never get out of the market just because you've lost patience or get into the market because you are anxious from waiting.
15. Avoid taking small profits and big losses.
16. Never cancel a stop loss order after you have placed it at the time you make a trade.
17. Avoid getting in and out of the market too often.
18. Be just as willing to sell short as you are to buy long. Let your object be to keep with the trend and make money.
19. Never buy just because the price of a stock is low or sell short just because the price is high.
20. Be careful about pyramiding at the wrong time. Wait until the stock is very active and has crossed Resistance Levels before buying more and until it has broken out of the zone of distribution before selling more.
21. Select the stocks with small volume of shares outstanding to pyramid on the buying side and the ones with the largest volume of stock outstanding to sell short.
22. Never hedge. If you are long on one stock and it starts to go down, do not sell another stock short to hedge it. Get out of the market; take your loss and wait for another opportunity.
23. Never change your position in the market without a good reason. When you make a trade, let it be for some good reason or according to some definite plan; then do not get out without a definite indication of a change in trend.
24. Avoid increasing your trading after a long period of success or a series of profitable trades.