W.D. Gann’s Most Important Money Management Rules

  • Divide your capital into 10 equal parts and never risk more than 1/10th of your capital on any one trade. This applies to all remaining capital as well.
  • Always use stop loss orders to protect your trade and place it immediately after entering a position.
  • Never overtrade by taking large positions. This would violate your capital rule. Remember ” safety first.”
  • Never let a profit run into a loss. When the market moves in your favor and you have a profit that is double the amount of risk you were willing to take, move your stop loss order so that you will have no loss of capital if hit.
  • When in doubt, stay out or get out.
  • Trade in active, liquid markets.
  • Don’t close your trades without a good reason. Follow up the position with stop loss orders to protect your accumulating profits according to the rules.
  • Accumulate a surplus of capital. This rule is very important. After you have made a series of successful trades, put some money into a surplus account to be used only in emergency or in times of panic.
  • Never average a losing position. This is one of the worst mistakes a trader can make
  • Never get out of the market just because you have lost patience or get into a market because you are anxious from waiting.
  • Avoid taking small profits and large losses.
  • Never cancel a stop loss order after you have placed it when entering a trade.
  • Avoid trading too frequently, getting in and out too often.
  • Be just as willing to sell short as you are to buy long.
  • Never change your position without a good reason based on set rules
  • Avoid decreasing your trading activity after a long period of success or a series of profitable trades.
  • Remember to accumulate a surplus and do not be tempted to increase your trading unit too quickly. Success can go to your head and has ruined many otherwise good traders

When you decide to make any trade, be sure that you are not violating any of these rules, which are vital and important to your success. If you close a trade with a loss, go over these rules and see if it was from violating any one of them. If so, then do not make the same mistake the second time. Experience and investigation will convince you of
the value of these rules, and observation and study will lead you to a correct and practical theory for success. —W.D. Gann.