Larry Williams: Training Key for Trading, Running

Larry Williams: Training Key for Trading, Running
Trader and marathon runner Larry Williams sees parallels between successful trading and successful marathon running. Williams, who recently completed his sixteenth marathon run, pointed to "pain and agony" as being two of the obvious similarities between trading and long-distance running."Anyone can run a marathon, if they train-it is the same in commodity trading-if you put in the training, you can be successful," Williams said."There is always a point in every run where you feel like hell, but you just have to keep moving forward and keep putting one foot ahead of the other. It is the same thing in trading. You have to keep putting your trades on," Williams said. "There is a point in every race when I feel sick, so I just slow down a little. It is the same with trading--when I'm losing in the market I pull back a little and catch my wind," Williams said.Williams began trading stocks in the early 1960s. However, about ten years later a friend suggested he look into the commodities markets because Williams could receive "a lot more bang for the buck there," his friend explained. And more bang for the buck he did find. In 1987, Williams parlayed $10,000 into $1,100,000 in the 12-month Robins World Cup Trading Championship, a feat no other trader has yet to match.Williams calls himself a "contextual trader" utilizing a blend of technicals and fundamentals. Currently, he trades for himselfprimarily focusing on Treasury bond futures, S&P 500 futures and currency futures, in a one-to three-day time frame.When asked about the health of currency futures markets, Williams responded, "I don't think currencies are dying, markets go through stages. What has upset the funds is that their trend-following programs don't work (because the currencies have been more stable recently)," he explained.Williams is the innovator of the %R momentum indicator. "I had been impressed with work that another guy did with stochastics," he said. "I liked the idea but thought (stochastics) was confusing and difficult to follow," Williams added. The %R indicator "is based on a similar concept (to stochastics) of measuring the latest close in relation to its price range over a given number of days. Today's close is subtracted from the price high of the range for a given number of days and that difference is divided by the total range for the same period," according to Technical Analysis of the Futures Markets, by John J. Murphy."A close near the highs, within a range, meant that a huge amount of buying had come in," Williams explained. "Markets top by closing on their highs and markets bottom by closing on their bottoms. Markets top because the market runs out of buyers-%R enables you to see that," he added. However, "that tool needs to be placed within the overall conjunction of the market," Williams said.Technicals "are not the 'be all and end all' that technicians think they are,' Williams said. Another indicator Williams likes to use in his trading is the "Commitments of Traders" data, released by the CFTC every other Friday. This report reveals the open interest statistics of large hedgers (commercials), large speculators and small traders."When commercials go from net long to net short-that is usually a good buy signal," Williams noted. "Commercials don't try to pick tops and bottoms-they accumulate and distribute," Williams explained. In current market conditions, Williams said "I think bonds are coming close to a low. Commercials are moving close to being net long-that's pretty bullish. Also, currencies are seeing heavy accumulation by commercials. But it will take a while for them to move up," he added. On the stock market- "I'm a short term trader in the S&P market. But, the smartest guys I know have been short this market a long time" he noted.What are some of Williams's reflections on the business of trading? "The thing I like about this business is thinking ahead of time. Most people live in the present. But traders have to think will it rain six months from now? Will there be a war 12 months from now? Will there be a famine two years from now? It's a neat place to live-we are living in the future," he said.However, trading can take its emotional toll, he notes. "We do have huge swings in these markets, which can cause huge emotional swings," he said. "It can cause traders to become manic-depressive. You get into a lifestyle of patterns. After 34 years, my life is full of big ups and downs. Most every commodity trader I know can get really happy fast and can get really turned off of something really fast," he said. How does he deal with this? "Run," he said.Also, realize "that it is still a serious thing we do, but it is still a game ... that's not all there is in life," Williams added. What advice does Williams have for beginning traders? "Start slow. Spend a lot of time and money on education. Because education is cheap compared to experience in this business ... The people who have learned the most are the most successful in these markets."Also, "learn a lot about money management" Williams said. "By and large, having targets doesn't work. Because you miss the one big move you need ... Cut your losses and let your profits run," he said, repeating an old market adage. "Over the years, it's been a difficult lifestyle. It's been a lot of pressure, but I wouldn't trade it," Williams concluded.