Larry Williams’ New Indexes Show You What the Big Money is Doing

Reviewed by Darrell Jobman

One of the most frequent pieces of advice new traders hear from experienced veteran traders is “do what the big boys do.”

Of course, that begs the question: “How do I know what the big boys are doing?”

That’s where famed trader Larry Williams’ new indicators come in. The Williams Professional Sentiment Index (Williams PSI) and Williams Electronic Market Accumulation Index (Williams EMAI) are available only on VantagePoint Intermarket Trading Software. These two indicators answer with a quick, visual display what the big boys – the commercials that use and produce commodities and professional traders – are thinking and trading.

Programmed by the VantagePoint development team under Williams’ close supervision, these new indicators bring Williams’ unique analysis skills together with those of another technical analysis pioneer, Lou Mendelsohn, a friend of Williams for the past 30 years. Mendelsohn developed the first strategy back-testing software for personal computers in the early 1980s and introduced the first version of VantagePoint in 1991.

Williams has long been an advocate of monitoring the big traders who have special knowledge and inside information about a market and frequently direct the course of price action by the timing and size of positions they take. Williams has advised traders at numerous seminars that if they want to know what the “elephants” are doing follow their tracks.

Two New Indexes

Williams Professional Sentiment Index and Williams Electronic Market Accumulation Index show when the big traders are buying or selling, often tipping off the start of extended trends. Pairing Williams’ early alert indexes with the predictive indicators that VantagePoint provides based on its application of neural network pattern recognition to intermarket analysis, is an ideal combination for producing early clues of trend direction and strength that can result in highly profitable trades.

“If I can get everything pointing in the same direction and from multiple perspectives, this increases the odds that the trade I am considering will be a winner for me,” Williams points out. “Trading is like going to a party; the more the merrier. I want several real reasons to trade. The VantagePoint indicators are completely different from mine so the combination of them and when they are in sync is very powerful.”

Williams, who is entering his sixth decade of trading, remains probably the most well-known individual trader alive today. Other traders have become famous while managing other people’s money, but Williams has focused his efforts on trading his own individual account and teaching thousands of other traders around the world many of his most effective trading techniques and indicators.

Perceived by many as a brash, young promoter in the 1970s, Williams has become known as an astute, innovative developer of trading indicators such as Williams %R and Williams Accumulation/Distribution among others. He gained a reputation as an aggressive trader by turning $10,000 into $1 million in a trading contest in the 1980s.

Larry Williams is equally well-known for writing books on trading over the last 40 years such as Long-Term Secrets for Short-Term Trading, Sure-Thing Commodity Trading, How I Made One Million Dollars Last Year Trading Commodities, The Right Stock at the Right Time and many others – mostly best sellers revealing his trading ideas and tactics.

Different Perspective

So Williams’ pedigree as a creative thinker and trader is unquestioned. However, while most technicians base their technical indicators on some variation of manipulating one factor, price, and use a technical analysis approach to trade, Williams has paid much more attention to conditions that make markets move – fundamentals, what the participants in trading are doing and seasonal patterns such as the time of the week, month or year when similar price action may reoccur – and then adds technical analysis to that.

At the base of his research into what the big money is doing is the Commitments of Traders report released by the Commodity Futures Trading Commission every week, indicating the number of futures and options positions held by commercials and hedgers, large speculators and individual traders. Williams has been analyzing the COT report since 1970 and put his own twist on this type of information to create these unique indicators for VantagePoint – his “private stock,” he calls them.

Williams Professional Sentiment Index, as its name suggests, measures the sentiment of professional traders as a group. When they are bullish, prices are likely to move up; when they are bearish, prices are likely to move down. Unlike typical oversold/overbought oscillators, when the Williams PSI Index moves above its upper threshold, it doesn’t indicate an overbought situation to short but suggests going long in line with the bullish professional crowd, or vice versa.

Williams Electronic Market Accumulation Index measures professional accumulation and distribution and is specifically designed for today’s 24-hour electronic markets, a far different world than when Williams first began trading. If prices move higher but this indicator doesn’t, the divergence suggests bearishness; if prices move lower but the indicator doesn’t, the divergence indicates a potential bullish situation.

How the Indexes Help

As readers of my articles or viewers of my webinars on www.TraderPlanet.com might recall, I use VantagePoint’s indicators including its predicted medium-term moving average, predicted moving average differences and the predicted neural index to get a sense of trend direction and gain insight as to when it is likely to change. Then I use breakouts of the predicted next day high or predicted next day low for specific points to enter or exit a trade and to determine my risk limits.

Note on the chart that, as U.S. Dollar Index futures prices declined in November 2009, professionals were becoming more bullishness. When Williams PSI moved above its upper threshold, (the green dotted horizontal line where the left black vertical line is), it indicated that professionals were buying. This indicator’s information confirms the crossover of VantagePoint’s predicted moving average differences that turned up, which is one of my favorite early alert clues. When the breakout above the predicted high (orange line) occurred (where the left arrow is on the chart), these early warning indicators would have had me ready to go long.

A similar situation occurred in January 2010 when Williams PSI again moved above its upper threshold (see right vertical black line), indicating that the professionals were buying. Clues like this, when further combined with VantagePoint’s trend forecasts, provide added confidence to take the breakout above VantagePoint’s predictive high when it occurs (see right arrow).

While it’s not a good idea to get overloaded with too many indicators which can become confusing to some traders, knowing that your VantagePoint predictive indicators, based on its intermarket analysis and neural network pattern recognition, are in line with what these two new Williams indicators show about what professional traders as a group are doing, can give you that little extra confidence to pull the trigger at the right time. This is usually when the masses of traders still relying on trend following indicators are indecisive which contributes to their trading losses and failures. For VantagePoint users who already know that getting early warning clues of trend changes is critical for trading success in today’s markets where hedge funds and other institutional traders dominate the landscape, adding these brand new indicators, developed by Larry Williams exclusively for VantagePoint users, to your VantagePoint trading arsenal is a no-brainer.

See Larry’s Indicators:

About the Author:

Darrell Jobman has been writing about financial markets for more than 35 years. A decorated Vietnam War veteran, he was a newspaper farm editor and editor of several agricultural publications before becoming an editor of Futures Magazine for more than 15 years. He has written and/or edited more than a dozen books and courses on trading. His passion is helping others succeed by teaching the “dos and don’ts” of trading and through his editorial contributions to TraderPlanet.com he has achieved this objective.

Learn More About Larry

 Letter from Larry  |  Bio |  Indicators | Interview