Good preparation, good comprehensive knowledge of the system and practicing it in a multitude of equal situations is the best recipe for good results and low stress. Because you will be very, very, very well prepared.
Category: Trading Psychology
Larry Williams has been trading futures and stocks for nearly 60 years. Winner of World Cup Championship of Futures Trading from the Robbins Trading Company, where he turned real $10,000 to over $1,100,000 (10,900%) in a 12-month competition.
Larry Williams has taught thousands to trade the markets, and has been the only futures trader in the world to repeatedly trade $1 million of his own money live at seminars around the globe.
He has created numerous market indicators including Williams %R, Ultimate Oscillator, COT indices, accumulation/distribution indicators, cycle forecasts, market sentiment and value measurements for commodity prices.
In between trading, researching and developing trading tools, teaching, and writing, Larry managed to run twice for the U.S. Senate as well as 76 marathons.
Part I. The Beginnings
When, have you for the first time considered trading as something worth trying?
Well, it was in 1962. I’m an old guy.
Could you describe your first system?
By today’s standards it wasn’t much of a system. We didn’t have computers back then. It was more a strategy than a system. It was based on the market being oversold and in an uptrend as measured by the advanced decline line. That was the strategy that I developed somewhere in the 60s. I wasn’t a futures trader, that was for stocks.
Did you experience periods of hesitation when you wanted to leave trading?
Sure, I still do today. It’s not an easy business to be a successful trader. And there are always doubts and questions. It’s always frustrating to be a trader. Not an easy life.
Was there any memorable experience that determined you to trade further?
What encouraged me was that to most of the traders it looked like easy work. You didn’t have a job, you didn’t have a boss. When I grew up, my dad used to work in an oil refinery. It was a hard, dirty, stinky, sweaty work. I didn’t want to have to live like that. My dad always told me that you have to think with your head, learn to work with your head, your brains. Not with your back like he did. And this looked like an ideal thing. If it goes up, you make money. That sounded like a good deal.
Did you have any external support at this time, such as friends, family, a mentor or a book?
No, not really. Along the way I met a couple of people that gave me some insight into the market. One was Gale Haller. He was very kind, I spent maybe three days with him over a couple of years. Back then you wrote letters, so we exchanged a lot of letters and became friends. He was very inspirational and encouraging. He showed me that it was important to try to assist other people. There was another fellow, Bill Meehan. I paid Bill a lot of money. He came and worked for me, taught me what he knew. He was a member of the Board of Trade. He was very helpful. Other than that I didn’t have anybody to hold my hand. For the first ten years I was holding my own hand. Usually in prayer .
Did you keep any trading journals? Were they really helpful?
I didn’t back then, no. I do now. Wasn’t smart enough to figure that out then.
Did you have a high level of stress when you started?
Probably not, I was too young to understand what I was doing. When you’re young, you’ll do all sorts of stupid things. You drink Red Bull and jump off cliffs. I probably wouldn’t do that at my age now. I didn’t realise what I was getting into, so I didn’t feel as much stress as in the later points of my life. Plus, it was just me. Now, if I do something, there are people all over the world following me, so I have the stress of market and looking like a fool to all these people. It’s a double stress now.
How do you cope with stress today?
I drink a lot . I think you need to put things in perspective. Nobody can be right all the time. I can’t be right all the time, I’ve proven that. The acceptance that this is a very imperfect business and not overbetting, not betting beyond your emotional threshold.
Did you attend any trading seminars or training sessions?
What did you learn from the early phase that benefited you most?
One thing I learned is that most of the stuff that’s out there is junk. At least for me. Things like Fibonacci and Elliott wave, astrology and all these may work. But they didn’t work for me. I had to find something that was compatible with how I thought, how I acted and reacted. That was kind of a breakthrough when you figure out that this doesn’t work, that doesn’t work. It doesn’t work for anyone and for me it didn’t work. That was one thing. I think I was getting into a cadence of pace, I could almost feel back then what the market was doing, where it was going to go, I just sensed it. It’s kind of a unique quality. To learn to be in phase with the market, learning to use stoplosses. When I was young, it was written about me, Paul Tudor Jones called me “Kamikaze Cowboy”, because I bet so huge. I had big up moves and big down moves. I used to not care, I liked getting into a fight, I didn’t care if I lose, I just like to fight. I was pretty much trading the market that way, too. Just had no fear of it.
Your father was a refinery worker and you said that you were determined not to work there. What is the role of motivation or determination in your success?
I think both my mother and my father were very motivational. My mother definitely wanted her children to do things, whatever these things were. And my father made it really clear to us that we should go to college. He worked hard to help his family have a better life. His father helped him to have a better life. It was like he was saying “You’ve got to find a way to live and work that’s better than what I’m doing because my life sucks, my work sucks, it’s hard”. So, there was a lot of motivation from my family to get educated. And to be productive workers. Not to be sponges on society.
What was your first year trading like? Was it profitable?
I can’t even recall. Probably wasn’t profitable or not wildly profitable. I think I went for two or three years of success, failure, success, failure. If on a given day I was ahead, I was ahead. But a few months later I might be a failure again. It was very much like a yoyo.
Did you have a regular job? How did you reconcile trading with this job?
Yes, I did have a job. I did everything I could not to get fired . Because I was paying more attention to the markets than I was working. I have always worked, but didn’t have much of a life. As soon as I got home I would be working on the markets. Then I looked for a job that would give me more freedom to look at the markets more. In 1967 I was finally up and running and able to tell people what I was doing. And they wanted to know. So I started writing a little letter about what I was doing. One of my old college professors always said “Don’t give it away for free”. And I never knew what that meant until everybody wanted my writings. Then I realized what Maxwell said and I decided to give a scholarship in his honour to University of Oregon. This year it will be 10 scholarships in his name. So, I started charging for the newsletter and this was an up period in my life. That started my publishing career.
What books have had the biggest influence on you?
For just the markets, it would be “The Zurich Axioms”. If you go beyond that, the great works of the world, whether it’s the Bible – there are so many lessons about life and cycles in the Bible, books on philosophy. There are so many good market books that I don’t even know where to begin. Books on understanding myself, like my son’s book he has written. I wish I had this thirty or forty years ago. It’s called “The Mental Edge in Trading” by dr Jason Williams. My son is a psychiatrist and he interviewed professional winning traders to see what the personality types were and how they dealt with failure and success. I wish I know what was in that book a long time ago. I suppose “Transactional Analysis” by Eric Berne was a helpful book. There was also a series of books on self-awareness, but I can’t remember the author’s last name. I did a lot of zen Buddhism, zen monasteries in the mountains of California. But the basis of the whole attitude was acceptance of who you are and that it’s an imperfect life. You can’t be addicted to perfection because you’d be frustrated your entire life. So, just accept what’s there.
Which of your books would you recommend to a beginner?
For a stock trader, it would be the first book I ever wrote “Sure Thing Stock Investing”. Most of the things are still alive and working quite well. Then, you can go to another level. Just like in college, you can go to a graduate degree. In commodities I would begin with “How I Made One Million Dollars Trading Commodities Last Year”. In a way it’s inspirational. Here’s a young kid that was able to make a million dollars in a year and didn’t have much money to go with. There are also techniques in the book, but it’s inspirational, to get people interested in this business. My other books get more technical and less inspirational, so that might not mean as much to a beginner.
Taking into account your actual experience, do you have any suggestions for beginners?
Study money management.
Be humble. Because the markets will humble you. Repeatedly .
Part II. Transformation from a beginner to a successful trader
When did you reach the level of consistent gains?
It took quite a while. I don’t think I was consistent until maybe 6th year of trading. Most people don’t want to sit through that long. They think they are going to get it instantly. They are smart. They make a lot of money – they are a doctor or a lawyer. But even to these people, it takes much longer than they think. It’s not a “get rich quick” business.
Could you describe your biggest win? How did you feel?
I felt dejected, I felt like a bit of a failure. Because I could’ve made more money. It could’ve been a better trade. It wasn’t a feeling of glee, exaltation and happiness. It was a good feeling, but still a bit of a failure because I could’ve had more contracts on, I could’ve held it longer.
I was trying to make a million dollars a week, that’s what was happening. I made a million dollars in a year, I made a million dollars in a month, I made a million dollars in a week. And I was trying to make a million dollars in a day.
By the time I was out of the trade I was up around 850 thousand dollars but that wasn’t my goal. So it felt like a failure. It didn’t feel particularly good, it felt like a trade. When I was out of the trade, the pressure was off for me for a while.
When you look at the good traders – Paul Tudor Jones, Steve Cohen – they are of course managing billions of dollars but they do this all the time. They’re doing it with a bigger amount of money. But that’s the thing that confuses people.
When I’m stuck in my trading, to me a million dollars is a hell of a lot amount of money to win or lose. My dad never had that in his entire lifetime. So I still have an emotional hot button which is the dollar amount, even if it’s a percentage. To me that’s just a gargantuan amount of money that I still have emotional issues to the raw numbers of dollars.
Could you describe your biggest mistake? What lesson did that experience teach you?
My biggest mistake was paying more attention to the markets than to my family. I learned that I have to balance my life. Clearly, if you are going to be successful at something, you’re going to have imbalance in your life. You’re not going to get anywhere if you don’t go to extremes. But I just had to be more careful about balance.
When have you become interested in Forex and indexes?
I have never been that much interested in that to be honest. I did trade them for a little bit. But frankly, I felt it was a bad deal. Because you pay a higher commission. Especially when I first started trading forex, they charged you 2 pips going in, 2 pips going out. Sometimes the price would go beyond my limit order and I wasn’t filled.
This is crazy, I can’t get filled, there’s no legitimate market here, no exchange, no regulation on this thing. And I’m paying 45 dollars where I paid 3 dollars before. So, I don’t trade Forex. Maybe now you don’t have as much vigorish in there. I’m paying 4 dollars roundturn, I could probably get a lower rate if I wanted. But I don’t like to beat up my brokers. And I’m an old guy.
To me Forex is complex – you’re doing all this spreads versus the yen, versus the D-mark, versus the Australian dollar, whatever. And I just want to be long wheat, cattle or gold. I can get all the trouble I want in a simple market like that.
And what I’m very upset with the Forex community about is to offer people 50:1 or 100:1 margin. I have more respect to the people that are selling crack cocaine on street corners than to people offering 100:1 margin. I actually mean that.
If you’re offering 100:1 margin, it’s just a question of time when your client will lose money. Period. It’s going to happen. Why do people do that? Why do they pounder these poor people like that? That’s always been a real concern of mine. People think: “Oh, I can open an account on a credit card!”. Yeah, you can but you’re going to get blown out. Really fast [laughter]
What do you do to mentally prepare yourself before each trading day?
I don’t do anything special. By this point in my life I’m a professional. I come to work and I’m prepared, I know what I am going to do.
There was a point earlier in my life when I tried affirmations, deep breathing and whatever. But I’m a professional, I record my notes, I record my trades, I know what I’m doing. If I don’t have the time to trade, like last night when we went to a big fancy dinner party, I don’t trade. I don’t go through any mantras or anything.
Today, do you have one particular system or many systems?
I have several. Some of them are automatically traded. I don’t know if I’m long or short. They just do the trading during the day. Then I have a strategy that I implemented in my own trades.
I have a crude oil trading system, an e-mini trading system, a gold system, a bond system – those are just traded mechanically by a computer. And then I have other trades that I will take based on my indicators.
If I understand you properly you do use robots?
Yes, we call them automatic trading systems or mechanical trading systems. I have those. I could develop them for the Forex market if I wanted to. But I like the big markets like gold, crude oil, S&P, bonds. There are some great trading opportunities there.
What do you think is the role of discipline in trading?
It’s huge. If you don’t have discipline, it’s not just about trading but also in business, if you’re an athlete, you’re going to fail. Just a question of when. You have got to stick with what you’re doing here.
What would be your advice to the people who have low level of self-discipline?
Get a day job . They’re not going to last. Better donate your money to the Salvation Army. Because you’re going to lose it. This way you will at least know who got your money and do some good for the world.
Do you have any regrets regarding your career path as a trader?
Yeah, sure. A lot of regrets. I regret that I was too much of a cowboy trader, so I didn’t get into money management. That’s where the big money is.
I mean I do OK. But the big money is in managing, these guys manage billions of dollars. I could have done that and I blew it. Because I was too much of a hot shot guy.
I also regret that I don’t have much regret from the institutional people because of that. I think the public people respect me and admire what I’ve done. But the big boys don’t want to have anything to do with me because I’m not one of them. That’s a failure or regret.
I regret that I haven’t been more disciplined and more organised in what I’ve done. I should’ve kept better notes. I’ve had so many bad trades. It’s so easy to be in a good trade, anybody can do that. The retrospection of a bad trade brings up cause for regret: “Why did I do that? How stupid was that? What didn’t I see?”.
I have lots of regrets. I have known so many people in this business and most of us are still friends but we have lost some friends because I said some wrong things at a time, upset somebody. I’m trying to be a little better person than I used to be but I still fail at that.
That’s not to say I’m not pleased. I’ve had some phenomenal, wonderful life. I can’t knock that. It’s been a phenomenal experience I have never expected. There are some things that I sure as heck could’ve done better and been a nicer person.
Your books are full of descriptions of attempts to understand the mechanisms of the markets and creating new indicators on this basis. Have you already given up the case or are you still creating something new?
I’m still working, I’ll be working on this until the day I die . I’ll be in a hospital under a respirator and I still say “Here’s one more idea, you’ve got to program it in here! We’ve got to try this.”
You have just read a part of the conversation with Larry Williams. Find the full version of the interview in the ebook “Conversations with Forex Market Masters” Check it out! www.ForexMarketMasters.com/ebook
We are entering a period of even more intense changes brought about by rapidly developing AI technologies. For the most part, they are having a negative impact on the profitability of retail investors’ and traders’ systems. Below I have collected problems that look like the most threatening to long-term profitability. For different people, their intensity will vary, while they are bound to increase. At some point they will affect every trader and will have to be solved. After describing each of them, along with possible consequences, I will give some suggestions for seeking solutions
PROBLEM 1: Changing the model of successful investing
According to research by LCH Investments (the oldest fund that invests in other hedge funds), the top 20 funds earned $22 billion last year. One of them, Citadel, run by Ken Griffin, earned 16 billion (72%).
The importance of this result is underscored by the fact that last year was a very tough year for funds. According to the same study, the entire industry lost more than $208 billion last year.
The reason for the big difference between the best and the rest was not only the tough market. We are dealing with the first results of the emergence of a completely new quality. The model of a successful fund has changed and the model of successful investing has changed. It is no secret that it is Citadel that has been building and perfecting it for several years.
In short: The new fund model is a number of thematic teams specializing in narrow areas: e.g. specific currencies, sectors. Here traders’ knowledge is supported by new technologies: quants, alternative data and edge analysis along the entire investment process.
As a result, teams are formed that have an advantage at multiple points (new term: multiedge) and practically suck money out of the markets on both ups and downs.
As a result, other traders or investors lose. They are no longer competing with other investors. They are pitted against each other with teams of traders, scientists and programmers who study and improve every element of the investment process. This is how multiedge is created.
Their results are much more stable than other traders (and other funds).
This is not something that will pass. After the success of the Citadel model, the entire investment industry will begin to emulate it. Within four to five years, the new model may appear in 40-50% of funds.
This model is winning the race for clients’ cash. It gives stable, high returns with less risk. The team has better strategies, a more complete picture of the market, and can find and exploit the best signals to the maximum faster.
As a result, little liquidity is left for other market players to exploit.
PROBLEM 2: Declining liquidity is also the result of crowding and increasing automation
Crowding is the crowding of strategies. The basic strategies are quite well known and the signals from them are watched by thousands of traders.
In strategies that have well-defined rules and steps to follow – some of the liquidity is picked up by automatons (these strategies are the easiest to automate). There is a growing saturation of AI (artificial intelligence) tools in funds. More and more strategies will undergo automation.
For retail traders, this means looking for new markets or new strategies. A trader who a dozen years ago could make a living using one system suddenly faces the challenge of finding “something new.” Usually he is not prepared for this, he knows his trade or his “system” well and does not know how to find something new, how to run and test it.
The second option is to review one’s own investment process with a view to improving it and drawing out to the maximum what it can bring. This is a program that every trader should start practically yesterday.
Improving your investment process is inevitable, any new strategy will also be at risk, and you should know how to get the most out of it while you can.
This is the ending of part one. You can read the whole thing in the magazine. Just subscribe below!
Get Current [Issue] of New City Trader.
Now It's Free!
The flood of information (information overload) is one of the three main problems that traders complain about.
The best traders have their solutions: they limit the amount of news to the necessary minimum. Too much and not – selected news gives not only a waste of time but also may suggest something that will have a negative impact on the position.
Change comes more easily if it is carried out daily over a long period. And it’s best if the new activity (such as analyzing or watching for a new type of exit) becomes part of your daily routine.
If you find something worth introducing or changing, the best way is to try it every day for a while to form a new habit.
The best of the best traders are constantly constructively satisfied and at the same time dissatisfied with their achievements.
The best traders I’ve met pointed to survival on the market as their main achievement. By studying their biographies, you can benefit in one particular way: you will strengthen your ability to adapt. Markets are changing and will continue to change, sometimes dramatically. Alternative data, big data and AI are coming into widespread use.
One day I came up with the idea of finding the best traders in the world and then asking them about everything that is relevant for achieving success on the market. I wanted to know their full story — from the beginning, up until now. In the result, I interviewed almost 100 traders from all over the world. One of the questions was “What are the cardinal rules of trading according to you?” Check it out, what some of them told me…
The reasons you get punched in the face in trading can be many: an attack on a refinery, a bombing, a flash crash, … or more mundane: a strong move and sl. A quick rise in price followed by an even quicker fall. An upward impulse, a downward impulse and a breakout of previous lows. You are on the minus side.