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MC: Have you had a terrible investment decision? If so, how did you learn from it?
LW: Absolutely, I’ve had many horrible trades in my life and I’m sure I’ll have some more in the future. I’m still learning this business. I was long propane and it locked limit for 17 days against me before I could get out of it. That taught me never to trade thin markets. I bought cattle one time and lost a few million dollars in one month because I thought it was fundamentally low priced and it obviously wasn’t because it kept going lower. So yes, I’ve had some horrible trades.
MC: Has there been anyone who has influenced the way you apply technical analysis or the way to trade? If so, how did he or he influence you?
LW: There were two people who helped me a great deal. First, there was a guy named Bill Meehan who taught me the fundamental aspect of the market. Bill was an old Chicago Board of Trade guy who taught me about the COT report and a little about money management - maybe I didn’t absorb all the lessons then. I then learned a great deal about money management from Ralph Vince who is the most brilliant guy of them all when it comes to money management. Pertaining to technical analysis, my good buddy Tom DeMark is someone I learned a lot from. Tom is a very creative guy and we made some systems together and did a lot of work together. He may have learned a little bit, I don’t know, but I’m certain I learned a lot more from him about looking at the markets, and patterns. Tom’s work is great and everyone should read it. Henry Wheeler Chase’s work is very good as well. He’s not around anymore but I learned a lot from him.
MC: Do you have a favorite book that you feel everyone should read?
LW: I think the best book on the market ever written is one called Zurich Axioms by Max Gunther. It is not going to tell you to buy wheat tomorrow, it isn’t that kind of book. To me it really explains what it is to be speculator. It really gets into how to think as a speculator, what to look out for and what to look for. It is so well written, just a really great book.
MC: Do you have any advice for traders or technicians entering the business?
LW: Don’t believe for a minute that technicians are going to be the be-all end-all of the market. What most of these technicians claim about how well you can do in the market is total hog wash or I’m too stupid to make it happen, I don’t know which. There’s no panacea, this is hard work and you have to think about it. All of these tools are subjective, mine as well. They don’t work a lot of the time and you’re going to be wrong. To win big, bet small and just because you have a buy signal doesn’t mean the market is going to go up so you better have stop protection. Do not believe much of what people tell you, you better double check it yourself.
MC: You mentioned quite frequently that you also use fundamental analysis. Are there any specific tools that you use for certain markets?
LW: When I’m tracking the stock market there are. I want to look at a lot of things in the stock market to select my stocks. Some of my work is based on return on equity, dividends, cash flow ratio, and things of that nature. For commodities I have a technique to tell if a commodity is under or overvalued and it is a really great tool.
MC: Do you find different markets such as currencies, commodities and stocks trade differently from one another?
LW: I find recently, because we’ve gone into electronic sessions, that they don’t trade much at all and then there’s explosive trading. The electronic sessions have changed a lot and we don’t have the same kind of markets as before. It used to be the markets closed in Chicago at 3:00 P.M. and then open the next morning. We had gaps and all sorts of things we don’t have now because we have seamless trading, the market closes and reopens a few minutes later. I think electronic trading changed many things.
MC: There’s always something changing.
LW: Yes and that’s why these are all tools and to say you have the be-all, end-all now and forever is not the way it is. Money is never easy to make. You have to be smarter than the other guy and you need to think your way through to make money in the market. You can’t just have some little thing to follow and do all the work for you.
MC: What are you focusing on now going forward?
LW: Just trading really. I have a couple of changes in %R that I think revolutionizes it or any oscillator. That’s been an exciting thing for me. I have a new way of looking at accumulation-distribution in the market place. In my stock market work I think I’ve come across a better way of evaluating stocks - I created a formula that combines a bunch of different evaluation tools such as p/e etc…but on a weighted fashion. I might give forward p/e a weight of 3 and price/sales a weight of 4, in order to get a mechanical approach to stock selection. Those are the big things I’ve been working on I guess. Also I trade and I’ve been pretty busy trading and figuring out what to do myself.
MC: You mentioned that you use mechanical systems in your trading approach. Do you always take the signal of the system or at times do you intervene?
LW: I’ll intervene.
MC: Do you have any final comments on how technical analysis helps you in your trading that we haven’t covered?
LW: I think technical analysis can be of real value, but I think you have to understand that it is analysis, it’s not perfect. Basically technical analysis has to do with price and that’s a very short term phenomenon. Therefore, to me, the help of technical analysis is for entry technique but I don’t think it helps much at all for the selection of what market to get into. To me, it’s all about entering and that’s just my experience, it’s not to say that someone else hasn’t figured out another way. My experience is all about entry technique, that’s what I use technical analysis for.
MC: Thanks, Larry, it’s been very educational.
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