Lesson 1 - Introduction: Forecasting in the Grand Tradition of W.D. Gann
1.7 - Commodity Prices since 1760
A look at the history of overall commodity prices since 1760 will show the importance
of having a long-term historical basis for market forecasts. In Figure 1.7, you
can see that history is marked by alternating periods of inflation, deflation
and price stagnation. As you can see, there have been six major inflationary
bull markets, which carried prices into final highs in June 1781, December 1814,
August 1864, May 1920, February 1951 and November 1980. The deflationary periods
following these respective highs lasted 11, 29, 32, 13, 17 and 19 years.
If a trader made market decisions in the 1980s based upon the assumption that the 1960s and 1970s brand of inflation would continue, major losses would have resulted during the 19 deflationary years between 1980 and 1999. However, by knowing that the minimum deflationary declines between 1781 and 1792, and 1920 and 1933 were approximately 12 years, the speculator would have anticipated the likelihood for a historic deflation. Do you see why a multi-generational perspective is so important and how the rules of the game are changed?
This leads us to our next principle, that we can never have enough historic
data to work from. The more data we have, the better our vision. The better
our hindsight based upon history, the greater is our probability for success.
As Gann said, "you cannot have too much information or too many records when
you are going to risk your capital."
Figure 1.7
go to section 1.8
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