Larry Williams: How I Made One Million Dollars Trading Commodities
Williams work one of the classic books written about commodity trading. Many commodity traders are always looking for the latest and greatest trading books. However, most veteran traders know that the “old” books are usually the best.
Larry Williams is a household name among the commodity trading community. This book came out in the early 1970s during a secular bull market in commodities. The book contains valuable information on trading commodities, but it is not a step-by-step guide on how he made his million dollars trading commodities as the title implies.
The Trading Strategy
I am sure that most of the people who read this book want to know how they can duplicate his strategy to make their fortune. Unfortunately, this is not possible with this book. Instead, you can use Williams' work to further your research and possibly use some of his methods in your trading to optimize your results.
The basic summary of his trading strategy is:
- Look for a premium in the near month futures contract compared to the back or deferred months. For example, is August 2007 Crude Oil is $73.25 and September 2007 Crude Oil is $72.80. The nearby premium means there is a supply tightness, and the commercial market participants want the product now, so they bid the nearby prices higher.
- Follow the Commercials as they are the “smart money” in the commodity markets.
- Open Interest is the main part of the author’s trading technique. The author's theory is that the Commercials represent open interest. If open interest increases, it is a sign of bearishness in the market. A decrease in open interest indicates bullishness by the commercials. Williams concentrates on the producer side of the market with this opinion.
- Trade on the side of the trend. Use a 10-week moving average to define the trend. If it is pointing up, you only take trades on the long side. If it is pointing down, you only initiate trades on the short side.
- For timing trades, he discusses the use of his %R indicator. You would be buying in an uptrend when the market becomes oversold and selling in a downtrend when the market becomes overbought.
These are all sound commodity trading principles. The rules of entering positions are not very specific, so traders are encouraged to use their discretion.
Money management in commodity trading starts before you even enter a trade. You must know how many contracts you can trade and how much you can risk on each commodity trade. The author’s rules are as follows:
- Never invest more than 30% of your equity--20% for new traders.
- Do not trade more than six markets at a time.
- When you feel like you cannot lose, that is the time that you will probably lose the most.
- You should risk no more than 5% of your capital on any one trade.
The money management advice is likely the most important section of the book. Almost all successful commodity traders abide by money management rules similar to those presented by Larry Williams.
More on Commodity Trading
Larry Williams does not offer a favorable view of commodity brokers in his book. He mentions that he has never met a broker that consistently helped clients make money in the commodity markets. The book came out in 1974.
The author also discusses many techniques to incorporate into your commodity trading to increase the odds of success. Some are helpful, and some are vague or irrelevant as markets have changed and evolved over the years.
There is an excellent chapter on the psychology of trading commodities. The mental aspect of trading is a critical issue in trading. If your mindset is not clear, chances are you will not make money. For anyone who is a habitual loser in trading commodities, reading this section or other books on the psychology of trading could be helpful.
A Classic Book on Commodities
When you read this book, you must realize it came out over forty years ago before the age of the personal computer and the Internet. Nonetheless, it is commodity trading book that is worth reading and keeping on the bookshelf. I have to admit that I believe the title of the book is a bit misleading. It would suggest a blueprint of the actual trades he placed, how long he held the trades and how much he made or lost on each trade. Did he hit on a couple of lucky trades or did he consistently win? The book did not present those relevant facts.
Larry Williams is still writing books, selling newsletters and trading. I would not rank Larry Williams as one of the all-time greats of commodity trading, but he has provided us with a lot of valuable research through the years on commodities and trading. I have found many of his methods to be profitable, and I also discovered some useful techniques that he has passed along from other traders.
This book is required reading for those who study commodity trading. The mere fact that Williams made a large sum of money in a short period is more than worth the price of the book. Numerous trading tips make How I Made One Million Dollars Trading Commodities Last Year, a valuable addition to any commodity traders library.
Opportunities Abound In Commodities Markets
Many books offer advice on commodities trading. Larry Williams’ book is an excellent guide offering many wonderful and useful tips and suggestions. Always remember never risk more than you are willing to lose on any one trade and make sure the profits you seek are commensurate with the risk you are prepared to take. Commodities trading is a leveraged and volatile game, never be afraid of missing a trade. Due to the volatility of the market, there will always be another opportunity right around the corner.