Building on the past
As Williams learned more about trading, he got into creating and using indicators to analyze the OHLC price data more thoroughly for insights into potential market action.
“Truthfully, most of the indicators were lifts or copies of what had been done before,” he says. “Bollinger bands are a re-work of Keltner bands that are a rework or what Owen Taylor had done. My accumulation/distribution studies are a spinoff of Granville’s on-balance volume, which was a spinoff of Cumulative Volume work done by a fellow named Woods in San Francisco. Moving averages, even weighted ones, had been used in the 1930s. My %R was a version of something called %AD that Allan Davis developed after looking at Stochastics.
“We all took twists off the old stuff to make better indicators,” Williams says. “The exceptions are some of the work by Welles Wilder and Tom Demark. Tom’s is totally original, like nothing seen before or since, and I am very thrilled to have played a part in developing that with Tom and having him as such a dear friend for so many years. He has taught me about much more than the markets.”
Williams notes that he and other researchers almost always used 10 and 20 time period averages because they did not yet have calculators – they could just move the decimal point over one digit for a 10-day average, then use two of the numbers for a 20-day average.
“Our ability to ‘check’ an indicator or idea was largely visual – looking at old examples,” Williams says. “We were very visual and kept records on 3-by-5 cards for the most part. Our ideas came from older ideas and looking at charts – lots and lots of charts.”
An important point in his development as a trader was the prevalent notion, back then, that markets are random so traders would not be able to make money consistently.
“Many of us have proven that false,” Williams says. “In doing so, I learned to challenge any general notion of how things are. There is good to that – like trading success, like what we found on my archeological expeditions to the Mideast – as well as bad – my continual challenge of authority!”
His little battle with the Internal Revenue Service and tiffs with the National Futures Association are good examples of the wrong side of the coin, he adds with a chuckle.