Surviving The Test Of Time
J. Welles Wilder
J. Welles Wilder is an author, market technician, and inventor of indicators and trading systems that have become classics over time. Without Wilder’s contributions to technical analysis, it would be hard to imagine what we would have in the field, considering so many of the basics are derived from his work — relative strength index, average directional movement index, directional movement index, average true range, parabolic stop & reverse... and there’s more that will influence traders for many years to come. Wilder also founded Delta Society International, expounding the theory of the delta phenomenon in the 1980s, about what he refers to the perfect order of the markets.
Wilder is the author of four books: The Delta Phenomenon; Wisdom Of The Ages In Acquiring Wealth; Adam Theory Of Markets; and his most famous work, New Concepts In Technical Trading Systems.
Stocks & Commodities contributor Brian Twomey conducted this interview in July 2008.
There is so much technical analysis out there that it is not easy to come up with something different anymore!
Earlier interviews alluded to your degree in mechanical engineering from North Carolina State University and your prior work as a real estate developer before your career in trading. Were you born and bred in North Carolina?
I was born in Norris, TN, in the middle of the Great Depression. My father, who had a master’s degree, worked on a Tennessee Valley Authority coffer dam with a pick and shovel. In my first three years, we moved from state to state before we ended up in Greensboro, NC. And that has been my home for the last 70 years. Since 1986, I have also had a home in Christchurch, New Zealand.
Using work from your book The Delta Phenomenon, could you expand on the perfect order of markets in relation to movement and time? What does this say about today’s market watchers and technicians?
All markets have a perfect order in five different time frames. The shortest time frame is intraday or a four-day series. The longest time frame is 19 years. There are only two markets with enough data to solve for the super long-term delta order. Those are the Treasury bonds and the stock market.
Each perfect order relates to two things. First is the number of turning points in the series for that particular market, and second is where the inversion comes. The inversion always comes at point 1. For example, let’s say that a market has 10 turning points. From point 1 to point 10, there is a high/low order or a low/high order that this particular market follows.
This order of the markets is the number of points and at which point the inversion can occur. This order is perfect, and once it is discovered, it will never change. Although the delta points have a perfect order according to these parameters, the exact placement of the points is not perfect.
The way we handle this is to take 10 series of turning points for a certain market. The placement of the turning point is the average of the placement of the 10 points. In a strong market move, we would expect the next turning point to come late because of the momentum. If a market is moving sideways, we can expect the turning point to be very close to its average position.
Regarding movement, the biggest moves often come on either side of point 1. There are intermediate-term points, the medium-term points, and the long-term points. The distance between these three sets of points increases with each set. When you get two or three different turning points coming at the same time, high or low, most of the time this will be a significant high or low point.