If there is one person who embodies the mind and spirit of the individual trader during the entire 40-year existence of Futures, it probably would be Larry Williams.
Although there have been a number of big-name commodity trading advisors, commodity pool operators, hedge fund traders and other well-known institutional money managers – names like George Soros, Paul Tudor Jones, Richard Dennis, Steve Cohen and others – Williams has been the one most closely associated with the public traders over the years.
“What Paul, Steve and guys like Scott Ramsey have done amazes me,” Williams says. “These guys are brilliant as great traders and businessmen. I have never been much of a business guy, just a trader. There is a massive difference and skill set needed to do what John Henry or Ray Dalio do vs. what I do. I trade, at times perhaps better than them. They, on the other hand, run huge enterprises, which is way out of my league.”
Williams was already gaining fame as a trader and author of trading newsletters and books when Futures was launched in 1972. His first article in the magazine (then called Commodities) appeared in the October 1972 issue (“Measuring Market Momentum”). Futures awarded him its first Doctor of Futures in 1999.
In a business known for one-hit wonders, Williams has endured, passing the test of time. He continues to be actively involved in the markets, often trading thousands of contracts a month along with teaching and research.
Williams gained renown not only for his trading abilities and trading contest winning feats but also for his books, now available in all major languages of the world, featuring innovative trading concepts and technical indicators associated with his name such as Williams’ %R, the “Oops” trade, the “Ultimate Oscillator,” seasonality and indicators based on accumulation/distribution and the Commitment of Traders (COT) indexes.
Although some say his legacy is based on winning the Robbins World Cup Trading Championship, Williams disagrees.
“Winning that was an accomplishment,” he acknowledges, “but it is not meaningful in that it did not teach or share my research. My real accomplishments have been the first book ever on seasonal patterns back in 1973, my work on measures of accumulation and distribution and being the originator for all the volatility breakout strategies that have become so popular.
“Another high mark for me,” he adds, “has been seeing the COT data become about as popular as Perrier water. In 1970 I was the only one trading and writing about this valuable data. It was undiscovered. To know I was the source of that and seasonals are my accomplishments. What pleases me about the contest is that most of the winners of the championship have been my students as well as my daughter who won in 1997. People can learn to trade.”
His marketing sense and flamboyant presenting skills have long made him a big draw at trading seminars worldwide, entertaining audiences by actually biting into and eating light bulbs to show that risk can be controlled while educating them on the value of fundamentals and monitoring what the market “elephants” (commercials) are doing. Williams has appeared around the world from Hong Kong to Hawaii, Moscow to Malaysia, Brazil to Belgrade; the world has become his stage.
All of this from a Montana boy (he used to ride bareback in rodeos) who started his college career as an art major and was totally clueless about trading.
“I first got hooked on the markets in the 1962 crash (when President Kennedy forced a rollback in steel prices),” Williams says. “The headlines caught my attention, but I came from a family that had never owned a single share of stock. All I knew about the markets was that whenever we left the lights on, my dad would say, ‘Turn off the lights. Do you think I own shares in Montana Power?’”
When Williams asked his Sigma Chi fraternity brothers what the market crash was all about, they told him he could have made a whole lot of money if he were short.
“Whatever that meant,” Williams recalls thinking.
But “a whole lot of money” without working sounded good to him. All he had to do was remember his dad’s admonition to “learn to work with your head, not your hands and back like me” and learn what going short was all about. By the time he graduated from the University of Oregon with a journalism degree in 1964, he was reading everything he could about trading and began following the legendary analyst Joe Granville, eventually getting into trading stocks.
“Joe meant so much to me,” Williams says. “Getting to eventually know him was an honor. What an inspiration he has been to so many. Remember how Joe walked across a swimming pool … on water … when he was on one of his many hot streaks? At a recent seminar I told everyone I would do the same as Joe – walk across the pool. With some help I took my first step and, kerplunk, to the bottom of the pool I went. My tribute to Joe was coming to the surface and gurgling, ‘Only Joe Granville walks on water.’”
Williams says traders today can hardly imagine how the task of trading has evolved since his early days.
“The most difficult thing back then was data collection,” he says. “Think about it. There were no downloads, no evening newspapers to get market information from. That meant you had to go to the brokerage firm each and every day to get the day’s numbers – open, high, low, close and volume as well as the number of stocks that advanced and declined for the day. That was our daily download.
“It also helped to have a broker willing to give you the numbers over the phone for the days you could not make it to their office,” he adds. “I had great brokers: Don Southard, Joe Miller, Ed Walters and Al Alessandra. Those guys really helped me so much.”
After Williams got the data and recorded it in his notebooks, he had to “run the numbers” – that is, calculate moving averages, on-balance volume and some oscillators. That took about an hour a day along with charting each day’s numbers on the 30 or so stocks he followed. It became a labor of love.
Although Williams is best-known for his prowess as a commodities trader, it may surprise some people that he actually “cut his teeth” on stocks and didn’t get into commodities until about 1969.
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.
It wasn’t just the data collection and chart analysis and random market thinking that was much different in the “old days” from what it is today.
“Your broker then was critical to your trading operation,” Williams says. “You needed a broker who fit you emotionally and mentally. Brokers were like family; one even became godparent for my children. That is just not going to happen now.”
Williams says that traders then often did not know if they had been filled on a position until the end of the day. Much of trading was based on trust, and traders learned to be men of their word or they were toast.
“I saw lots of guys try to renege on bad trades,” Williams recalls. “I also saw brokers who would help you a little. If you had been down and they had a profitable trade, they would allocate some of it to you or any client that was hurting. Those were profits they could have knocked down for themselves.”
Today, with online trading in electronic markets, there isn’t much personal interaction any more – no one to hold their hand or feel sorry for them – so traders must take responsibility to trade on their own. Williams thinks that’s a great improvement.
Of course, Williams points out, there were only a handful of traders in his early days – maybe less than 50,000 active futures traders. Now there are millions, making the competition tougher and the markets a lot more volatile.
“Everyone with a computer is now an expert,” Williams observes. “The big emphasis has swung from natural resource markets (“real” things like soybeans, gold, cattle and wheat) to abstract ones (man-made instruments like Swiss francs, T-bonds and stock futures), which has changed the game a great deal with more arbitrage trading and computer-driven programs.”
Old truths still stand
Despite all of the changes that have taken place in his half century of trading, Williams says the big take-away lessons for today’s traders are the old ones:
- Don’t bet big on any trade.
- Use money management. “Ralph Vince opened my eyes to this; it is the most critical factor of all. Nothing is more important to survival.”
- Fade the advisors and public; they are most often wrong while the commercials are most often correct.
- Don’t let your emotions run your trading game.
- Trade what you see, not what someone tells you that you should be seeing. Forget the news; trade what you see.
“Above all, fundamentals matter,” Williams concludes. “As I see it, price goes up or down, from point A to point B, due to fundamental conditions. That means we must understand fundamentals. However, the path price takes is not direct; it is a path driven by the news and emotions of the day. That’s where technical analysis shines.”
Williams says that what has been especially rewarding about his career is seeing people that started with his material go on to greatness.
“Bill Cruz, the founder of TradeStation, began with me. I vividly recall Tim Mather, founder of CQG, in my classes, along with Glen Larson of Genesis,” Williams recalls. “To know that I had a small part of so many careers is immensely rewarding.
“It is not over yet,” he adds. “I still have some new trading ideas (that he shares on his web site www.ireallytrade.com and in Larry Williams University trading courses). That’s what I love the most about this business – there’s always something to learn!”