Larry Williams Futures Trading

Larry William's method use COT reports and he fine tunes with it his own indicators that he has developed to narrow down when to enter and exit the market. It also appears he relies on using seasonal moves that may occur in commodities each year.
Summary of Larry's trading strategy:

Summary of Larry's trading strategy:

Here is the basic summary of his trading strategy:

Look for a premium in the near month futures contract compared to the back months. For example, August 2007 Crude Oil is $73.25 and September 2007 Crude Oil is $72.80. This means there is a supply tightness and the commercials want the product now so they bid the prices higher.

Follow the Commercials. They are the “smart money” in the commodity markets.

Open Interest is the main part of the author’s trading technique. His 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.

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 take trades on the short side.

For timing the trades, he discusses the use of his %R indicator. Basically, you would be buying in an uptrend when the market becomes oversold and selling in a downtrend when the market becomes overbought.

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Williams %R

Williams %R

Williams %R, or just %R, is a technical analysis oscillator showing the current closing price in relation to the high and low of the past N days (for a given N). It was developed by trader and author Larry Williams and is normally used just in the stock market.

The oscillator is on a negative scale, from -100 (lowest) up to 0 (highest). Such a scale is a little unusual and is sometimes found altered (by adding 100), but needn't cause any confusion. A value of -100 is the close today at the lowest low of the past N days, and 0 is a close today at the highest high of the past N days.

Williams used a 10 trading day period and considered values below -80 as oversold and above -20 as overbought. But they were not to be traded directly, instead his rule to buy an oversold was

* %R reaches -100%.
* Five trading days pass since -100% was last reached
* %R rises above -95% or -85%.

or conversely to sell an overbought condition

* %R reaches 0%.
* Five trading days pass since 0% was last reached
* %R falls below -5% or -15%.

The timeframe can be changed for either more sensitive or smoother results. The more sensitive you make it, though, the more false signals you will get. The "close-position within a range" in the %R indicator is the same as the %K stochastic oscillator, on a different scale.
I like his indicator that compares the price of the commodity you want to trade ie wheat to the price of gold. ( not sure what he called it). He uses a combination of indicators and if I believe if 4 of the 6 conditions ( indicators) are met he makes the trade.
Larry is one of the few vendors I recommend to beginners. My first experience with trading 20 years ago was with one of his courses. He emphasized money management and that has stuck with me my whole career.