Lesson 1 - Introduction: Forecasting in the Grand Tradition of W.D. Gann
1.9 - Principles of History Repeating in Various Markets
While it is true that history repeats, it is important to understand that different markets have different personalities. Each market -- whether it is the corn, cotton or stock market -- demonstrates different characteristics, some of which are shared with other markets, and others which are unique to that market. We can learn what their tendencies are by looking at their price moves from the past.
When analyzing historic data we are like detectives. It is like looking for the habits or patterns of criminals to see what they will do next. Based upon the forensic evidence of a market's current move we can determine if there are any close fits in history.
Gann said, "the farther back you have a record of a stock or commodity and the more you study it, the more you will understand its actions and know when it is making tops and bottoms. You should become thoroughly acquainted with the stocks and commodities you trade, and by studying them, you will learn their individual moves which are peculiar to themselves." The
trader can then make deductions based on probabilities, not upon hope, fear
or guesswork.
A study of history shows you the formations that are made at market highs and
lows decade after decade. From this you learn what accumulation or distribution
looks like in various commodities. You learn the typical duration of bull and
bear markets in normal times and abnormal times. You learn what the runaway
portion of a cycle looks like and what kinds of buying or selling corrections
are experienced along the way. You learn what a "blow-off" and a crash look
like because these will be repeated in the future. By observing past trends,
you discover the current position of a market. There are always sister markets
from the past that we parallel very closely. These previous market moves give
important clues on what our market is going to do.
A review of history reminds us of what markets are capable of -- what is probable
and what is not. Since our memories are short, the historic record is there
to help us make decisions based upon facts. Listen to what Gann said: "By studying
past history and knowing that the future is but a repetition of the past, you
can determine the cause according to the time and conditions. Sometimes it
is necessary to go a long way back to determine the cause, because you must
study war, its effect, the conditions before war and what follows."
go to section 1.10
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