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Welles Wilder is best known for his technical indicators – now considered to
be
core indicators in technical analysis software. These include Average True
Range, the Relative Strength Index, Directional Movement and the Parabolic
Stop
and Reverse.
He has written many articles on trading, appeared on numerous radio and
television programs, and conducted technical trading seminars in Asia,
Australia, Canada, USA, and Europe. He has also developed the Delta market
timing software, One Day at a Time. Around the world, there are probably more
traders using Mr. Wilder’s systems and methods than any other discipline.
Part I : Who is J. Welles Wilder?
TJ: Please provide a background of yourself? What were you doing before you
become a trader? When and how did you get into trading?
It just so happens that I have had several careers. Between high school and
collage, I was an automobile mechanic and joined the Navy and became an
airplane mechanic. After the Navy, I went to North Carolina State Collage (On
the G.I. bill) and graduated with a degree in Mechanical Engineering. After
seven years of engineering (and building a large Mobile Home Park on the
weekends) I left engineering and got into Real Estate and Land development.
Two other people and I built 1,035 apartments in five cities in North Carolina
and Virginia. I bought an airplane, learned how to fly it, and made the rounds
of the five projects about every day. When the apartments were almost finished
my two partners wanted to buy my third of the projects.
In the mean time, I had become interested in trading commodities because they
are even more highly leveraged then like Real Estate. My partners and I agreed
on a fair price and suddenly, at 38 years old, I had all the money I needed
and
nothing to do. So, I started to study the art of Commodity Trading.
TJ: What was it like when you first started?
I made a lot of money in Silver because I had reason to believe that Silver
was
going to increase in price. I can remember buying a contract of Silver at
$1.38
an ounce. I think that was as low as it got.
TJ: How have you evolved as a trader?
I began to trade other commodities and I soon learned that one can also lose
money trading commodities. So I stopped trading and began to get into
technical
analysis. This was in the early to mid seventies. The only book I could find
in
the library about trading was written by a man named Gold. Then I learned
about
a man in Wysetta, Minnesota who had collected about everything in print on
Technical Trading. For a small price, he would send you several of his
writings
at a time and allowed one to copy them before sending them back.
TJ: How long did it take before you considered yourself successful?
And how would you define success? My first real success in the Commodities
Industry was in 1978 when I wrote and self published my first book, NEW
CONCEPTS IN TECHNICAL TRADING SYSTEMS. Before I wrote that book, there were
just two basic totally automatic trading systems to my knowledge. One was the
MOVING AVERAGE and the other was Richard Donchian’s WEEKLY RULE.
In the New Concepts book, I introduced four new automatic trading systems.
They
were, The Parabolic Time/Price System, The Volatility System (which introduces
Average True Range) The Directional Movement System, and the Swing Index
System. The book also includes the first momentum oscillator to put all
commodities and Stocks on one scale. That was called The Relative Strength
Index or better known as the RSI. Over the years, we have sold more than
25,000
copies worldwide. At $65.00 it was also one of the highest priced books on
trading.
Upon completing the book I ran a full page ad and an article on the RSI in the
June 1978 issue of what was then called Commodities Magazine. This was just at
the time that small computers were becoming available and it seemed every
trader in the world was looking for something to program. We sold thousands of
copies of the New Concepts book to these people all over the world.
The result of this is that I suddenly became well known in about every country
that has commodity and Stock traders. In the meanwhile, I developed an
(automatic) visual trading system called The Reverse Point Wave system. It
worked equally well on stocks and commodities. To make a long story short, I
put on seminars and taught this system to traders in about 10 different
countries.
Probably, what contributed the most to my success over the years was my
ability
to write advertising copy. That is quite unusual for a Mechanical Engineer! I
suppose that it was about this time that I considered myself successful in my
third career.
So how would I define success? I would say; by setting oneself a difficult goal
and then achieving it.
TJ: What is the largest contributor to your success?
Determination, and being one of the best ad copywriters in the industry.
TJ: What do you trade?
I trade the 35 major US commodities, primarily, and next; Gold and Silver
stocks
and options.
TJ: What was your first trade like?
My first trade was in Silver and it was very profitable.
TJ: What was your best trade?
The one I remember the most was in the early seventies when I bought $10,000
worth of Silver options and sold then for $40,000 six months later.
TJ: What was your worst trade?
Well, I hate to tell you this one. It proves that I’m not very smart after
all.
In the Spring of 1999, I thought that Y2K was going to be a problem. That was
when my wife and I decided to live permanently at our home in New Zealand. I
thought that if there were problems, then Gold would rise in price. So I
bought
1600 Gold options. About a week before we left for New Zealand, Gold began to
rise rapidly.
When I got to New Zealand I realized that I had forgotten to take a new data
disk. My office in North Carolina e-mailed me the value of my options every
day. When they reached two million dollars, I decided to take profits. So I
e-mailed my office manager to BUY 200 Gold options every day. What I meant to
say was SELL 200 Gold options every day.
When I found out my mistake a week later, I almost fainted. I e-mailed him to
SELL every option we had left the next day. To end this story quickly, (I
don’t
much want to think about it!) I ended up just about breaking even on the deal.
That was certainly my worst trade; which could have been my best trade, except
for one word. . . BUY!
TJ: What methodology do you use?
I use the best trading system I ever developed. It’s called the Delta Plus
system. It makes over 100% a year, every year, trading eight commodities. It
is
available only to members of The Delta Society International. It uses, among
other things the Volatility System and the Parabolic Time/Price System.
TJ: Is that what you do now – you have a newsletter and you manage money?
What I do now is head up an organization I initiated in 1984 called The Delta
Society International. I write the monthly trading letter that members
receive.
I do not manage money (except for myself!) We don’t have space here to talk
about The Delta Society. If interested, please check out our web site.
www.deltasociety.com
Part II : New Concepts in Technical Trading Systems
TJ: How did the book come about?
Where did you get the inspiration and ideas for the book? In the mid
seventies,
I had time to come up with a lot of new trading concepts. So, I decided to do
something that I had never done . . . write a book about the best ones.
TJ: What is the central theme of the book?
Frankly, I don’t think there is one because each system has its own theme.
TJ: What makes it stand apart from other books?
I think it was the new concepts that were different from anything else in print
that made it totally different from other books.
TJ: How could one get the most out of the book?
Read it slowly and carefully until you understand the concept for each system.
And understand what serious system developers have learned . . . that the best
system in the book (often overlooked) is the Volatility System concept.
TJ: Can we talk a little bit about the RSI?
What led you to develop the indicator? Back then, people were using
oscillators
to show the strength and weakness of a particular stock or commodity and each
oscillator had a different scale. The RSI put all commodities and stocks on
the
same scale from 1 to 100.
TJ: How?
Frankly, I can’t remember exactly how I did it. But, I could figure it out
again, given enough time.
TJ: In basic terms, what sort of signal(s) does the RSI give?
In a nutshell, it measures the current strength and weakness of a particular
market often in advance of the move. I don’t think we have the space here to
cover it completely, but on page 68 it is laid out in detail, including one of
the most important concepts: “The Failure Swing”.
TJ: Are the principles in the book still relevant in today’s market?
What would you modify and add if you are to write an updated edition today?
The
answer to the first question is definitely. For the second question, I can’t
think of anything I would ad or take away in the book. I admit that is quite
unusual!
Part III : On Markets
TJ: How do you view the market?
The markets must win or else their will be no markets. There must be more
money
lost than won. The big winners are the Commercial Hedgers with huge money to
back up their positions. These are the Fundamental Traders. The second group
of
traders is the Large Speculators which are mostly the big commodity funds.
They
are technical traders. The last group is the Small Trader. The Small Traders
certainly outnumber the other two by I would guess a thousand to one. Since
only 5% of Small Traders (over time) end up making a profit you can see where
the money comes from to make a market. Fortunately, so far, I am still in the
5%!
TJ: How do you approach the market?
I have two accounts. In one account, I follow the Delta Plus System on the 8
commodities exactly, no matter what I think personally. In the second account
I
use the Delta Turning points and my own judgment to trade all of the market,
but not necessarily at the same time!
I also have another system, called the DDS (Delta Directors System) that
trades
any and all commodities with only one parameter. (A parameter is a certain
value or number that changes for every commodity.) This system has averaged
over $50,000 a year in actual trading for the last 10 years. Nine out of the
ten years were profitable. The one losing year was a loss of $5,000. The first
quarter of the following year made over $20.000.
TJ: What has changed in the markets now from when you first started?
Since the markets must win, most trading systems can work fairly well for a
year or two and they break down to loosing as more and more sophisticated
market action adapts to defeat the system. So what has changed is that the
markets adapt to most every kind of trading system, and it becomes harder and
harder to come up with a system that can beat the markets. But, a few of them
do beat the markets year after year. The more commodities your system trades
well and the fewer parameters it has, (no more than two at the most) the
better
and longer lasting is your system.
TJ: What has remained the same in the markets now compared to when you first
started?
Not much except for the three classes of traders.
Part IV : On Trading
TJ: Is trading difficult? Well, it’s certainly not simple.
Successfully trading commodities is the most difficult thing I can think of.
TJ: What are the difficulties?
Finding a good trading system and following it exactly.
TJ: What is the biggest cause of failure and how should people overcome it?
Letting your emotions override your plan or system.
TJ: Are traders born or can they be taught?
Both. Some people are born with an innate discipline. Most have to learn it the
hard way.
TJ: What would make a good trade?
The trade should be in the major trend direction. It should not have wild
gyrations. If possible there should be a nearby support area to provide a
reasonable stop. It should be rated high on the COT. (Commitment of Traders.)
TJ: What would make a lousy trade?
It would be a trade against the major and minor trends with wild gyrations.
TJ: You’ve been trading for some time. I think one of the most difficult
things
traders are faced with is dealing with emotion. How do you avoid falling into
the type of trap?
That’s a good question. It takes experience, discipline, quickly recognizing
the problem and the determination to overcome it. Otherwise get out of trading.
TJ: What else should people keep in mind when they are managing risk?
Risk is something one should consider before entering the trade. He can use a
chart to determine the support and resistance. If those allow too much risk,
either forget the trade or come up with a dollar (amount of money) risk. Most
importantly, do not increase the risk if the trade is going against you.
TJ: Given a chance to start all over again, what would you like to do
differently?
Well, if I knew then what I know now, I would probably know Bill Gates and
Warren Buffet as personal friends! Seriously though, as I look back on my life
and think of how exciting and rewarding it has been, including the hard times
and the good times, I wouldn’t change a thing!
TJ: Let’s talk about trading education. How long do you think it would take
someone to master the art of trading?
Of course that depends to a great extent on the person and his mastering of
the
attributes we have been talking about. Most traders never master the “art of
trading,” because to me that implies being able to trade profitably without a
system to rely on. So, I don’t think there is I have a definitive answer to
that.
Part V : Trading System
TJ: Other than the book, you have also developed a trading systems? Please
tell
us a little about it. Why did you develop it? What is the basic principle?
Over the years, I have developed numerous trading systems. I ended up with two
trading systems that I will probably trade for the rest of my life. One is the
Delta Plus System which trades 17 commodities profitable with low draw downs.
I
prefer to trade Delta Plus on what I call “the big 8” instead of 17. It has
two
parameters. It has twelve years of very profitable results and two years of
actual trading results.
The other system is the DDS system. It is based on a certain configuration
that
very often causes a major break out either up or down. We take the trade in
the
direction of the breakout and follow it with a unique stop. Although this
system is definitive, it has never been programmed. It would be a bear for
anyone to program. Our experience with the program in 10 years of actual
trading, as I mentioned above, was over $50,000 per year. Draw down is
generally very low.
TJ: What is your view on trading systems?
Do they work? What makes them work? I think the best thing a commodity trader
can rely on is a good trading system. In the February issue of Futures
magazine, is an article bout the “Top Ten Trading Systems through Time”. I
know
George Pruitt (who conducted the testing) personally. He is totally
trustworthy. I have not revealed my two systems to anyone to program. My
personal programmer is good friend who works exclusively for me.
I will list several of these systems so you can look them up on Google. They
are all for sale. Here we go: Aberration, Basic II, Dollar Trader, R-Breaker,
Grand Cayman, Trend Channel, and Golden SX.
I am not familiar with any of these systems or how many commodities they
trade.
I don’t want this to sound like a commercial, but add to the list my Delta
Plus
System, which is available from the Delta Society International.
TJ: When you create these systems or indicators, do you alter them constantly
to
adjust to changes in market behavior?
Absolutely Not. That is a recipe for disaster. I call it fooling oneself.
TJ: What is the Volatility System and how did it came about?
I think the Volatility System is the best, but most overlooked overlooked
system in the New Concepts Book. In 1993, Futures Magazine did a study on
trading systems, and declared then that the Volatility System was the best
system up to that time. The system is also on George Pruitt’s list mentioned
above. The basis for the system is my discovery of True range. The system has
two parameters that should be adjusted for each commodity. One is the number
of
days in the Average True Range. The other is the distance from the close of
the
high day to the SAR (Stop and reverse.)
Part VI: Recommendations TJ: What books would you recommend to our readers?
To tell you the truth, there are now so many books out on technical trading, I
have not been able to keep up with any of them. However, I have a lot of
respect for any books written by Tom DeMark. Look him up on Google.
TJ: Do you have any final comments you’d like to share?
I really enjoyed writing this. Your questions were very well put and covered
about everything that one would want to know about trading. I hope that my
answers have been beneficial to your readers.
I am over 70 years old and my abilities to do what I have done all my life are
not as sharp as they used to be. Over the years, I have written three books on
technical trading and trading systems and one book with the modest title of
“The Wisdom Of The Ages In Acquiring Wealth”.
If I had only known in my youth what is in this book, I would be much
wealthier
than I am now. The book is all conversation between the teacher, Mr. Richmond,
and the students. I would urge you to get a copy from Amazon. Read it yourself
and then have all your children read it.
In closing, here is something kind of interesting. My name is spelled Welles
Wilder. The only other person who I have found that spells Welles with two e’s
is Orson Welles. So if you look me up on Google as Welles Wilder you will get
so many hits. However, if you look up Wells Wilder you will get three times as
many hits. The bottom line is that three fourths of the people that make
reference to me don’t even know how to spell my name!
Well, I really appreciate your insight and thank you for your time.Interviewed
by Trader’s Journal
