In the arena of technical analysis, it's hard to imagine not ever having heard about Larry Williams, well known as trader, author, newletter editor and money manager. Think of it -- virtually every technical-based software has some of his technical indicators. Despite all that, surprisingly, Williams is not as fond of technical analysis as you might expect. Why? We found out the answer when STOCKS & COMMODITIES Editor Thom Hartle spoke to Williams via phone on April 23, 1997, discussing Williams's views on technical analysis, money management and other topics.
The good thing is, clearly, technical analysis works, but the bad thing is, clearly, it doesn't work very often
-- Larry Williams
When did you first start trading?
In 1962 I started following the stock market while I was attending the University of Oregon. I still remember how someone pointed out to me that one of the most active stocks had gone up two and a half points for the day. I asked, "What does that mean?" and whoever it was replied, "You would have made $250 today!"
Wow!
Back in the 1960s, that was a lot of money. I said, "Man, this beats work!" And ironically, I've been working at it ever since!
When did you move from stocks to commodities?
I traded stocks from 1966 to about 1970. In 1970, an old trader showed me how commodities worked. He had noticed that I had done pretty well trading stocks, and he told me I ought to try trading commodities. At that point in my life, I still believed in technical analysis, so I thought my methods would work in the commodities markets as well.
You say you don't believe in technical analysis. What are the good things and the bad things about technical analysis as far as you're concerned?
The good thing is, clearly, technical analysis works, but the bad thing is, clearly, it doesn't work very often.
What does that mean?
Most technicians are one-dimensional. They are, well, technicians, and to them, a buy signal is a buy signal is a buy signal. Well, a buy signal in a bullish fundamental market is very different from a buy signal in a bearish fundamental market.
Could you elaborate?
Sure. For example, if I were to consider buying bonds, I want the relationship between bonds and, let's say, gold, to be giving me the signal. I don't want to just look at the price of bonds -- that's one-dimensional. There's a strong relationship between gold and bonds and I want that relationship to give me the signal, not just the price of bonds.
Besides the bond market versus the gold market, do you have any other intermarket relationships that are important to you?
Well, I think the bonds are influenced a great deal by Eurodollars.
In what way?
It's my opinion that a buy bond signal in the bond market should be confirmed by a similar signal in Eurodollars. Another really interesting relationship I've seen concerns municipal bonds.
What about them?
Munibonds tend to get weak at major highs in the bond market. I don't fully understand why, but I've seen it often enough that when it occurs, I know I'm going to see the bond market topping.
When you talk about fundamentals, are you talking about the environment?
Sure, technical stuff works, but within what environment? For maybe the first five to 10 years I believed that there was some magic, Holy Grail, be-all-end-all secret that somebody out there knew about trading. I spent a lot of time looking for it. I hired I don't know how many people to look for it, and I bet it's been close to a million dollars I've invested in programming to look for it. I thought that I even had pieces of it from time to time. Frankly, I think that all we get is an indicator that works for a while.
What else besides using an inappropriate time frame choice for a technical trader can get them into trouble?
For a conceptual example, take the martial art form of karate. You take a class, you learn to block and to throw punches, but it isn't going to help you in a fight.
Why not?
Because in the class everything is choreographed. Here comes a punch, and here's the block for the punch. Essentially, everything is done in slow motion. So you learn all the punches, all the blocks, all the kicks, and that's similar to learning the ins and outs of technical trading. You think you have it all.
But clearly, you don't.
No. In the street fight of the real world of commodity trading, the trades don't come out of the books any more. They are coming in real time, and what happens in real time is very different. It's fine that you learned the basic blocks and punches, because that way you have some idea of how to deal with an aggressor or the market. But the aggressor is always going to come at you in a different form.
