Interesting comments!
Profile: Larry Williams Shifts Toward Fundamentals
By Allen Sykora
Chicago-July 27-FWN--Larry Williams has evolved from a
technical trader in the 1960s into one who now relies
heavily upon fundamentals and conditions.
"At one time, I thought all this technical stuff meant
something," he said. "I no longer think it means much.
"Books of that era (the 1960s) professed that charts
answered everything. I don't really believe that anymore. I
think what answers everything is fundamentals. Things happen
for a reason.
"Before taking any trade, I need to have something that
has set it up on a fundamental basis--whether it's a short-
term trade or a long-term trade. Then I'll bring in the
technical aspect.
"I am what I call a 'conditional trader.' I've got to
have conditions. The conditions are more important than some
whirly-gig oscillator or a trendline on a chart.
"I think those things explain the past. But they don't
explain the future."
Williams is a highly regarded trader who focuses mainly
on futures markets, although he will occasionally trade an
individual stock. He lives by Rancho Santa Fe, Calif., near
San Diego. He has written several books, including "How I
Made $1 Million Trading Commodities Last Year," which was
about one of his trading years in the early 1970s.
He has had two other $1 million dollar years. In 1987,
he won the Robins World Cup Trading Championship by turning
$10,000 in to $1.1 million. And in 1997, he turned $50,000
into more than $1 million. Some of his other books include
"How Seasonal Factors Influence Commodity Prices" and two
volumes of "Definitive Guide to Commodity Trading." His most
recent book is "Long-Term Secrets to Short-Term
Trading."
Williams described his shift from a technical trader to
a fundamental/conditions trader as a gradual learning
process. The conditions he monitors range from fresh news to
historical tendencies.
"It has to deal with cause-and-effect relationships in
the marketplace," he said. "Those things are controlling.
Charts don't move the markets. Markets move the charts. And
I need to find out what those things are that are moving the
markets.
"Also, I prefer to have not just one (condition). I'd
like to have a couple. I'd like to have a loaded deck."
Some of the data he tracks include the Commitments of
Traders reports that come out every other Friday, investor
sentiment indexes, interest rates, and relationships of
markets to other markets. He added that there are certain
times of the year when the Federal Reserve has tended to add
money to the economy.
Once Williams determines whether a market's conditions
are bullish or bearish, he might use technical factors for
specific entry into a market and placement of stops. But, he
added, "I think too many people have seen technicals as the
be-all, end-all, and they don't see it as one, little tiny
element of the puzzle."
Some traders tend to favor technical analysis because
they say it's hard to ascertain whether a fundamental
condition is fully or partially factored into a market. "I
understand their point," said Williams. Yet, he maintained
that fundamentals cannot be ignored, either.
"The fundamentals are not precise as a timing
technique. But a technical buy signal in a fundamental bull
market has a totally different impact than a technical buy
signal in a fundamental bear market. You have to go back and
check the premise.
"A buy signal is not always a (reliable) buy signal. It
depends on the conditions. If the stage is set for a rally,
great, the buy signal is going to work. But if it isn't, the
buy signal isn't going to work very well."
Williams' average trade tends to last from three to
five days. His favorite futures markets are the bonds and
S&P 500 futures index.
"They have lots of movement, and I need that as a
short-term trader," he said. "They are very fundamentally
oriented. There are lots of cause-and-effect things in the
bond market and stock market, and I like to have that advantage."
Williams' interest in trading was first kindled by
reading a newspaper as a young man.
"I came from a family that didn't have the money to do
stock investments or anything like that," he said. "We
didn't even know about it." He was raised near Billings,
Mont., where his father worked for an oil-refining company.
Williams did as well, before going away to college. He
graduated from the University of Oregon with a journalism
degree in 1964 and went to work as a copywriter for an
advertising agency in New York City.
He later returned to Oregon, where he and a partner
began publishing the "The Oregon Report," about politics and
business growth in the state.
"I was looking at the paper one day and I said to a
friend, 'What does this mean--this stock went up one point?'
"The guy said, 'Well, it means if you would have bought that
yesterday, you would have made $100.' In the '60s, that was
a huge amount of money.
"That got my attention real quickly. I didn't know
anybody who made that much money in a day. I thought, 'Wow,
if you can figure this thing out, you can have a lot of
money without having to have a job.' I really liked that concept.
"It was all-consuming. I'd never had anything like that
in my life where it just grabbed me. I read every book I
could. I went to all of the libraries. I went to the
brokerage firms, did everything I could, to try to find out
more about this subject matter."
Williams does have wide range of interests away from
the markets, including marathon running, fishing and
archeology. Due to his journalism background, he also has
other business interests in publishing.
He took up running marathons in the mid-1990s and has
run approximately 40. In recent years, he has tended to
average one a month.
He prefers fishing in streams, but has fished for
Atlantic salmon north of the Arctic Circle in Russia.
"I've been treasure hunting all over the world, usually
dry-land projects," he said. "A few years ago, I got
interested in religious treasures--things that are supposed
to be there that nobody has ever found, like Noah's Ark or
Mt. Sinai."
He made a trip into Saudi Arabia resulting in the book,
"The Golden Exodus." The postulate is that Mt. Sinai, where
God gave Moses the 10 Commandments, is in Saudi Arabia,
based on the evidence uncovered by his expedition.
Williams' advice for novice traders is: "Go slow.
Study money management. Read everything but don't believe
much. And paper trade." He suggested a novice consider paper
trading for at least a half-year before actually entering
the markets.
"Most people don't have a clue what markets do and how
they react, or how individuals react under stress," he said.
"You need to be careful. I've seen people really get hurt
trading and lose lots of money. It's wise to start with as
little risk as possible because it's a very risky business.
"Develop slowly as a trader. Most people rush into it.
It's fun to do and it looks so easy, they just jump in and
start doing it, when they don't really have the background
to do it. "And they overtrade. They trade too many contracts
or they trade too often for the amount of money they have.
"Take a long time to learn to be a good trader. I'm
still learning, and I've been in it for almost 40 years."
What does he mean by, "Read everything but don't believe
much?" "I think there's a lot of stuff that's been written
about the markets that is bogus," he said. "There are a lot
of notions that aren't supported with any data. They might
only show three or four examples. "I think you have to
document well, and a lot of people haven't."
Williams advised newcomers to test any trading ideas
they read about, before actually using them. "You have to
confirm it. And once you confirm it, you'll find out who the
people are who are telling it like it is, and then you can
rely on their work a little bit more.
"I've read many books that are way off base, and I know
that because I researched what they said. In fact, I saw on
the Internet where a guy had a basic reversal pattern. I
took his exact rules and tried to program it, and it was not
even close to working.
"He probably saw this once or twice, and he had a
notion that's the way the markets move. I'm willing to test
anybody's notion of anything. But I want to document it."
Williams encouraged traders to become computer-oriented
and control their emotions. "You have to learn that you are
as important as your system or your approach," he said.
He also encouraged market newcomers to focus heavily on
one market or one technique. For instance, suppose somebody
chooses to rely on Elliott Waves. "If they focus totally on
that technique, they'll be able to understand it and use it,
as opposed to somebody who tries to use Elliott Wave, point-
and-figure charting, candlestick charting, oscillators and
trendlines."
In Williams' case, "I want to know everything I can
about bonds, because that's what I trade."
Williams also suggested traders use replay in the same
way as some professional athletes. As an example, he pointed
to longtime San Diego Padres hitting star Tony Gwynn, who
has won a number of National League batting titles.
"The other day, they (broadcasters) said that after
every time he bats, he goes back in the dugout, and they
replay a tape of Tony's at-bat to see what he is doing right
and wrong," said Williams. "I thought, 'That's great. That's
what traders should do. They ought to replay their
trades.'
"I finished a book last night that Gary Smith has
written. He's a real good trader, and that's how he made his
break-through. He went back and looked at all of his losing
trades. I can remember when I did that myself."
There are a number of factors a traders should examine
in a self-analysis. "Look at what initially got you to think
about being long or short," Williams said. "Was it
fundamentals, was it a news story, something from a
broker?
"Look at the technique that got you in, the technique
that got you out, and look at yourself. Did you pull your
stop or not use a stop? Look at your emotions at the
time.
"One thing I've noticed in my trading is that the
trades that look the most secure are almost always the ones
I lose money on. The ones that scare me to death are almost
always the money-makers. So you need to look at where you
were emotionally."
This awareness will keep him from taking out too big of
a position even when he's confident of himself. Williams
recounted one recent trade that he thought was as sure as
"money in the bank."
"I knew I was going to make a killing on this trade.
But then I said, 'Larry, where have you heard that before?'
So I didn't take as big of a position as I could have, and
it was a losing trade.
"It looked like a perfect trade for me, but that little
bell said, 'This is still a difficult business. You've got
to be careful.'" |
