Review Gann's 28 Important Trading Rules

To be successful in trading commodity futures, a trader must have clear trading rules and follow them. The trading rules given below are based on my personal experience, and anyone who follows these trading rules can achieve success.

1. Capital to risk: Divide your capital into 10 equal parts and never risk more than 1/10 of your capital on any one trade.

2. Use stop-loss orders: Always place a stop-loss order 1 to 3 cents away from the trading price for protection, never more than 5 cents away; for cotton, the stop-loss should be 20 to 40 points away, never more than 60 points.

3. Never overtrade. Overtrading violates the above rule regarding capital.

4. Never let a profit turn into a loss. Once a profit of 3 cents or more has been gained, raise the stop-loss order so that the principal will not suffer a loss. For cotton, once a profit of 60 points or more has been gained, also set a stop-loss order at a point that will not cause us to suffer a loss.

5. Do not fight the trend. If you cannot determine the trend based on your charts and trading rules, then do not buy or sell.

6. When in doubt, get out, and never enter a trade when in doubt.

7. Trade only in active markets. Stay away from sluggish, dead futures contracts.

8. Diversify risk. If possible, trade only 2 to 3 commodity futures. Avoid putting all your capital into one commodity future.

9. Never place a limit order or set a specific price to buy or sell. Trade at the market price.

10. Never close a position without a reason. Always set a stop-loss order to protect your profits.

11. Accumulate surplus. After a series of successful trades, deposit some funds into a surplus account to use in emergencies or during panics.

12. Never buy just to get a small profit.

13. Never average down a loss. This is one of the worst mistakes a trader can make.

14. Never close a position because you have lost patience, and never enter a trade because you are impatient.

15. Avoid small profits and large losses.

16. If you set a stop-loss order when entering a trade, never cancel it.

17. Avoid entering and exiting the market too frequently.

18. Be willing to go long and short with equal willingness, keeping your objective aligned with the trend, and thus make money.

19. Never buy just because a commodity future's price is low; never sell short just because a commodity future's price is high.

20. Be careful not to add to a position at the wrong time. Wait until the commodity future becomes very active and breaks through a resistance level before adding long positions; wait until the commodity future breaks below a distribution zone before adding short positions.

21. When going long, add to positions in commodity futures that show a strong uptrend; when going short, add to positions in commodity futures that show a clear downtrend.

22. Never hedge. If a commodity future we are long starts to decline, do not hedge by selling short another commodity future. Exit at the market price, accept the loss, and wait for the next opportunity.

23. Never change your position in the market without a reason. Trade with a full reason or based on a clear trading plan, and do not exit until there is a definite sign of a trend change.

24. Avoid increasing your trading size after a long period of success or profit.

25. Do not guess when the market will top; let the market prove the top itself. Do not guess when the market will bottom; let the market prove the bottom itself. By following clear trading rules, we can achieve this.

26. Do not take advice from others unless you know they know more than you do.

27. After your first loss, reduce your trading, never increase it.

28. Avoid entering a trade incorrectly and exiting incorrectly; avoid entering a trade correctly but exiting incorrectly. This is doubling the mistake.

When we decide to make a trade, we must ensure that we do not violate any of these 28 trading rules. These trading rules are crucial to our success.

When we close a position due to a loss, check these trading rules to see which one we violated; then do not make the same mistake next time. Experience and research will make us believe in the value of these trading rules, and observation and study will lead us to conclude the correct and practical theories needed to succeed in commodity futures trading.