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Larry Williams
50 Years of Trading Experience

Larry Williams is one of the most successful and best-known traders worldwide whose trading career spans 50 years. In 1987 he won the Robbins Trading Company World Championship in futures trading when he turned $10,000 into $1.1 million within just twelve months. Mr Williams has developed several well-known indicators such as the Williams %R or the Ultimate Oscillator. He has written eleven books, which have been translated into twelve different languages. Great traders like Tom DeMark or Andrea Unger have attended his seminars. Prior to his biggest trading successes, he was also involved in politics, twice running for the ofce of Montana state senator. In addition, he has completed a total of 76 (!) marathons in his life, proving his remarkable endurance level. Today, Mr Williams lives in the U.S. Virgin Islands where Marko Graenitz talked to him on the phone and interviewed him about his trading and his life.

TRADERS: We are pleased to be able to conduct this interview with you. Where exactly are you now, and how are you doing? Williams: Fine, thank you. Im also happy to be talking to you. I live in the Virgin Islands where I have a house on the beach which is close to where a lot of friends from the trading business live and work. Were like a little family, and I can honestly say that I am living my dream.

that nancially. Trading is my life. Of course, it helps a lot to be successful as a trader and to not have to worry about money. In that respect, trading is no different from other professions. By trading is my life I also mean that I can now use the Internet to focus a lot more on training the other young traders without having to travel around all the time. You know, young traders are usually too aggressive and believe everything they hear. That is why training is so important even though most traders need to have their fair share of negative experiences themselves.

TRADERS: What has changed in the last few years?

Williams: Trading is a great thing, and I dont just mean

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TRADERS: Did you have any of these bad experiences initially as well, or you were successful from the very beginning?
Williams: Of course, I have made a lot of mistakes and also lost a great deal of money. And those were really bad mistakes. In that respect, I was not different from most beginners. But there is a wonderful way these mistakes can be put to good use: You can learn from them. And thats exactly what the key is keep learning and improving.

TRADERS: You have gone through the transition from oor trading to electronic trading. How difcult was that for you?
Williams: It was certainly not easy. Anyone who has made the transition from the oor to the screen will tell you that. You need to go through a period of adjustment. Certain strategies just do not work anymore but there are other, new ways opening up instead. It took me about six years to make the transition and completely and successfully change over to the computer.

Larry Williams with Ronald Reagan during his political career.

for a round turn. Besides, there is the problem that the whole thing takes place over the counter and no one can say exactly what the price is actually like. This means that orders will not be executed and you dont know whether there is something wrong there. Anyway, I simply feel uncomfortable with all this.

TRADERS: How has all this changed trading and the whole trading environment? Specically, do you nd electronic trading better despite initial difculties?
Williams: For years, I had all my orders being taken care of by a broker friend of mine, and oor trading has led to close personal relationships being developed. Electronic trading changed all that and like many others I felt that I had to fend for myself even more. Still, I think its better now. Only each individual trader is responsible for his trading, and not at least partially the broker as well. What I miss, however, are the personal contacts and conversations, i.e. the whole atmosphere.

TRADERS: Why is it that many traders appreciate the Forex market in particular as being suitable for trading?
Williams: Well, in Forex trading the highest leverages of them all are possible, 1:100 and more. Naturally, this attracts many private traders and can therefore be a trading opportunity if you have little starting capital. Every Forex trader should, of course, be clearly aware of the risks associated with the leverage potential. Margin is dangerous, especially since trading as such is a dangerous business as it is.

TRADERS: Can you tell us about your basic trading philosophy?

Williams: I do not see myself as a technical trader, but as a conditional trader. That means that my setups are oriented towards certain if-then rules. If my macro analysis shows, for example, that the market is highly likely to start another upward movement, then Ill choose my setups, position management, and technical criteria accordingly and adjust them to this scenario. So I will start with the big picture and then transfer my analysis to a shorter time frame in which my trading takes place. That way, I manage to always work with more or less similar tools but to adapt the settings to them according to the market phase. A very specic indicator value in a bull market may have a completely different meaning than in a bear market. So the all-important thing invariably is what the context is in which traders assess the current indicators.

TRADERS: Which markets do you trade today?

Williams: My focus continues to be on commodity futures. Of course, my techniques also work in other markets. Furthermore, I am now active as a fund manager in stock trading. Thats an interesting line of work, and there are some friends working nearby who manage billions of dollars in funds.

TRADERS: What about currency trading?

Williams: In Forex trading, commissions are too high and I feel that the market is too opaque. This may sound strange, but I think I can do better with futures where my round-turn (buy and sell) costs are less than ve dollars. Thats simply unbeatable. In Forex trading, I pay at least one pip depending on the currency pair, i.e. at least two

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TRADERS: Is it possible to quantify this and use it as an automatic trading model?

Williams: I do not believe that mathematics is the answer to everything. To be sure, you can be a successful trader in quantitative terms, which some hedge funds have demonstrated. To me, this is not a solution though, because the markets are simply too strongly inuenced by random effects as well which human traders with relevant experience can simply respond to better. Mathematics is a pure, exact science and thats exactly

what does not apply to the markets. Look, for example, at Steve Cohen, the founder of SAC Capital. He has no hard and fast systems, and yet he is one of the most successful hedge fund managers of them all with assets of eight or nine billion dollars. Just like me, he looks at trading as a kind of art that requires some input from the artist (i.e. the trader) and needs to t his personality.

TRADERS: What analytical tools do you prefer to use?

Williams: First and foremost, of course, the Commitment of Traders (CoT) data when it comes to trading commodity futures.

F1) Stocks vs. Bonds

The data are one of my macro factors. I think that what you have to properly understand here above everything else is the crucial group of commercials but thats exactly what the majority of traders dont. They misinterpret the data or look too much at what the speculators are doing. You need to understand that the commercials are the fundamental force, and that their overriding aim is not prot maximisation but the protection of the sale price in the form of hedging future production volumes. We could talk a few hours about the subject, but that would clearly go too far. In addition, the CoT data is ultimately only one of the factors in my analysis. I also continue to consider the relationship between stocks and bonds, which plays a fundamental role. There has always been and there will always be an interaction here. Whenever bonds make a strong move in the short term, that will certainly have an impact on equities. For example, when trading bonds you can work very well with support and resistance levels and then use this analysis for well-timed

The upper chart shows the S&P 500, the lower the 30-year US treasury bonds. On the lower chart, the strong upward trend from April to June 2012 is clearly visible. During this period, the stock markets performance was poor. But higher bond prices and with them lower interest rates were subsequently an important prerequisite for the long uptrend in stocks from June to early October 2012 (A). Meanwhile, bond prices consolidated and formed a support in the range of 144 as well as from December 2012 a falling trend line, which together resulted in the formation of a triangle. In January, bond prices seemed to break out downwards, which would be negative for the future share prices. Recently, however, bonds were able to gain again so that a false downward breakout is possible here. That would leave shares with more room on the upside.
Source: www.tradesignalonline.com

trades in equities or vice versa. Figure 1 shows a few examples of this.

TRADERS: Do you also use trading-volume analyses?

Williams: I once studied the Indicator On Balance Volume (OBV)

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for a whole year looking for recurring regularities without coming up with a denite result. Nevertheless, I use the indicator from time to time as a support when I have a feeling that it adds value in the situation concerned. Much more interesting, however, is the

Williams: No, Im not, I focus here only on the major US stocks. The reason is that I only buy what I know and understand. And that doesnt include any positions in Greek stocks nor, for that matter, in those that currently happen to be reported on the most.

Margin is dangerous, especially since trading as such is a dangerous business as it is.

idea of accumulation and distribution. This approach has been made popular by William ONeil. Now I particularly use my own indicator called Williams Insider Accumulation (Figure 2), which, for example, is available in TradeStation. This indicator uses accumulation and distribution purely with regard to institutional trading and looks for divergences of price performance. The institutions are the driving force, which is why this analysis is so revealing. The indicator may be used for equities and commodities, and I use it on the daily chart.

TRADERS: Would you agree that the risk/reward ratio (RRR) is the most important concept for successful trading?
Williams: Theres no doubt that the RRR is tremendously important. To get big prots, you have to take minor risks, while also trying to catch the largest possible movements. However, it is difcult to isolate one particular benchmark as being the most important one. I can see a number of other data that should not be neglected: the scale of the drawdowns, the amount of the maximum losing trades as well as the efciency ratio. This is exactly why there are the reports that include all those data required for professional recalculations and strategy analyses. If you simply reduce everything to one criterion, something is bound to be neglected. Traders ought to beware of simplifying things in such a way.

TRADERS: Whats your assessment of trend-following strategies as opposed to countercyclical approaches?

Williams: Quite clearly, the trend is the basis for the majority of prots. You need to understand that an intact trend is a function of time. It follows that time and is a trend-following traders ally.

TRADERS: What do you bet on in the case of longer-term positions in equities?

Williams: Im looking for quality stocks, not worldwide though, but only in the Dow Jones. For this purpose, I analyse various key data such as the price/sales ratio and other data, which are then combined to a specic value by using a weighting formula. This is the macro analysis. Ill then buy the shares once Im given the technical green light on the market.

F2) Williams Insider Accumulation Index

TRADERS: So you are not actively looking for longer-term stock positions outside the US?

The upper chart shows Gold from December 2011 to October 2012. Below we see the progress of Larry Williams Insider Accumulation Index. What is particularly clear is the negative divergence between price development and indicator in September: Traders who recognised the growing weakness of the indicator were able to assume with a high degree of probability that gold would not be able to overcome the previous resistance in the February high range, causing them to bet on falling prices.
Source: www.tradestation.com

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TRADERS: Larry Connors recently said in an interview (TRADERS 03/2012) that stops frequently worsen performance in systematic trading strategies. What is your assessment of stops when it comes to discretionary trading?
Williams: I use hard stops. This means that the order is in the market and is triggered when the stop is reached.

Williams: Yes, I use trailing stops as well. Again, the result certainly is a bit different for the simulation of trading strategies, but trailing stops are of benet to the protection of prots. I have developed a proprietary formula which is based on the price movement and indicates to me the ideal point for the trailing stop. In addition, I use prot targets. Trading is also a business

Trading is also a business where you need to take prots at some point instead of hoping for ever larger book prots.

It is emotionally better to exit immediately and be out of the trade. Of course, the stop should not be too close to the current price since it will otherwise be triggered unnecessarily, causing too many losses. Larry Connors analyses the whole thing against a different background. It may be that in mechanical strategies a stop is of no use, but in discretionary trading you rst need to endure this emotionally. And thats exactly the problem: emotionally, the drawdowns would be devastating, although nancially things will be all right in the end. What looks good in a simulated situation is anything but good if you have to live through it and trade it with all your emotions in real time. You wont see the happy ending in the middle of the drawdown, but will instead suffer from self-doubt and wonder how you can get out of the mess again. After all, it is also possible for your account to not recover after one or two huge drawdowns or, in an extreme case, to drop straight to zero. Using stops, I can prevent the whole problem from arising in the rst place. I also believe that discretionary traders can achieve higher returns with stops than without them.

where you need to take prots at some point instead of hoping for ever larger book prots. When one of the two signals is triggered trailing stop or prot target , I will exit the trade and always do so with the full position instead of making any partial exits.

TRADERS: Have you ever traded without using any stops?

Williams: Of course, that was one of my classic beginners mistakes that I already talked about earlier on. I can well remember a trade that I absolutely didnt want to exit because I was so convinced that I was right. I then bought more shares even as I was losing. You can imagine how the whole thing turned out. I can tell you though that you can adhere to fundamental market rules much better after you have broken them yourself, making a heavy loss in the process.

TRADERS: So you tend to be sceptical about automated trading strategies?

Williams: Not necessarily. I myself also use some mechanical trading strategies that work automatically. But I continue to understand by trading that you do the trading yourself. Basically, you should only trade what you understand and what works for you personally. And traders ought to then follow these approaches consistently. After all, there is no such thing as the one

TRADERS: Do you also use trailing stops to protect prots?

Efciency Ratio The efciency ratio was introduced by Perry Kaufman in his book Smarter Trading . A price change is divided by the absolute level of the individual price movements which have led to the overall movement. The result is between zero and one. The higher the value, the more efcient the movement in plain English, that means a stronger trend with less frequent and/or less severe pullbacks.

top strategy. Thats exactly why the markets are ultimately unpredictable, as we have seen earlier. Nothing is more constant than change. And that is what even after 50 years still makes it so exciting to be a part of it all!

TRADERS: Were glad to hear that you still enjoy trading. What would you advise beginners to focus on?
Williams: Well, many experienced traders think that the choice of exit is the biggest factor in determining trading

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DONT TRADE IN THE DARK

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To learn more, visit trainingtraders.com

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TRADERS: Are you still learning even after 50 years of trading?

Williams: Yes, denitely. Either I learn something new or I brush up on previously acquired knowledge. Trading is dynamic. Once you stop learning, that is tantamount to stagnation, and stagnation ultimately means regression or deterioration.

TRADERS: Can you tell us what new things you are learning or from whom?
Williams: Yes, sure. My friend Ralph Vince has great ideas about money and risk management. I keep learning new details from him success. My view is, however, that entry is even more important since it is the entry that initiates the entire risk position in the rst place. Once you are in a trade, it can sometimes be difcult to exit easily especially if the position is very large and traders are emotionally married to the position after holding the trade for a longer period of time. That is why it is so important to have very precise exit scenarios even prior to entry to cover both a successful and unsuccessful outcome. Thats a bit like in real life. Whenever you get into something, you need to know beforehand, if at all possible, how to best get out again, especially if the whole thing should go wrong for example, when buying a car, building a house, or even in a marriage. I think that too often most people just hope for the best and when starting something think too little about any exit scenarios. And particularly in trading, you will certainly have little success with this loose concept. and every now and then discuss them with him in order to expand my knowledge. Market wizard Scott Ramsey, too, has great ideas that inspire me. I also focus more now on longer term trades, and there is a lot to learn in this area. As a trader, you must simply never stop developing your skills.

TRADERS: You have achieved so much in your life that others can only dream of. What is most important to you, and do you still have any goals left?
Williams: I accept everything the way it is. You dont need to make life unnecessarily complicated. Most important to me are the wonderful friends Ive come to know in my lifetime, and the personal relationships that have resulted from that. Of course, being successful in trading helps, saying anything else would be a lie. Quite honestly, though, its not the most important thing, and that is something traders should always be aware of.

TRADERS: A few years ago, you founded the Larry Williams University. What caused you to make this move, and how are things going there?
Williams: As I told you earlier, the Internet offers fantastic opportunities to impart knowledge. I must admit that the project was my wifes idea. I wanted to do less travelling for seminars and so on, so an Internet platform seemed like a good idea. Once a month I do an online seminar where I pass on my knowledge. I also still attend one or the other major Traders Expos, for example those staged in New York, Tokyo, and Singapore.

TRADERS: In 1997 just like yourself, ten years earlier, your daughter won the Robbins Cup in trading. Didnt she take any more interest in trading later?
Williams: I think she makes more money as an actress than most traders do playing the market. And regardless of that, acting is what she wants to do. No amount of money can replace that.

The interview was conducted by Marko Graenitz

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