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How to Apply Indicators to Seasonals and Cycles

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All market prices tend to move up and down, but detecting where they are in a recurring pattern can be a challenge. Larry Williams has developed unique indicators based on changes in professional trader sentiment, accumulation and other studies to make reliable three-month forecasts of where prices are heading to give indicator users a big edge over the trading crowd

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I’m talking with Larry Williams today, he’s got a tremendous track record, over 50 years in trading.  We’re talking about his proprietary indicators, his exclusive indicators in TradeShark.  Larry, you’ve been talking a lot about seasonality and cycles.  Talk about what started you down that road of trading that way.

Began in 1972, I was wondering what the seasonal pattern of a couple markets were, if there even was such a thing.  Because we traded the egg markets back then, they don’t trade now.  But I knew from my trading experience eggs usually rallied around Easter of course, right?  So I started doing research on that find, indeed they did.  So I developed a way of looking at seasonality and wrote the first book ever literally in the history of the world about seasonal influences in commodity prices way back in 1973.  That book has just opened up the door to so many other books in a whole cottage industry of seasonal trading, it all started with that one book.  There’s a great tool, seasonal factors can be a really good tool but you have to understand how to use seasonal factors as well.

You’ve got some indicators exclusively on TradeShark, the cycle track and the trend track, talk about those.

Well the cycle track is really interesting, it’s a little different than seasonality.  Seasonality shows what the seasonal pattern is, so we can know instantly in TradeShark when seasonally speaking soybeans usually rally, when gold usually declines, when stocks usually rally.  So that’s very helpful and we know that in advance.   Now my cycle work, cycle track, this is just, it even stuns me sometimes when I see that I can predict the market out for the next three months when it will have its highs and lows in the marketplace.  Is it perfect?  No.  But it works so dog gone many times Tim, I was looking the other night at my charts, this is uncanny.  The same format for Google, the same cycles are working in Google, work in gold, work in treasury bonds, work in S&P index, work in the currencies, work in FX.  What my whole work did was to take three dominate cycles that are usually in the market place and then combined all those together in one projection of the future and that projection of the future has been so reliable to let me know in advance when there is going to be a significant high or low in the marketplace and it’s fascinating to me I just like really, intrigues me emotionally and intellectually that these cycles are really all about human emotions, work whether it’s the United States markets, the markets in Australia, the markets in Europe, we all seem to have some emotional cycle going on in us as traders.  Regardless of the culture that can give us a projection for the next three months of when any market most likely will top or bottom, all that is in TradeShark.

What’s actually behind the indicator?  I know that it’s a lot about timing in terms of the time of year but it’s also about the human emotion that you mentioned.  So how do you write an indicator for human emotion?

Well, emotions are expressed in price by big up moves in price and big down moves in price, everybody’s negative on a market it declines, everybody’s buying it until there is no buyers left, that’s incidentally why markets top, there’s no buyers left.  You don’t see sellers coming into the market we know that when my professional sentiment index can actually measure when a professional is actually buying or selling.  They don’t come in and sell it’s just there is nobody left to buy.  If nobody’s buying prices look around and go..oh..I guess I’ll go down.  I mean really looking at the accumulation going on in a market place and in certain different time periods the problem with seasonals, seasonals are helpful because they show when usually there is a crop planting, there’s a typical cycle within a business.  That’s the seasonality, but these time cycles come in and out and that was a hard thing to first identify the three dominate time cycles then weight them correctly because let’s say you have a typical cycle in the market like eighty days, that tends to work in most markets and it isn’t always there.  So how much weight do I give that verses a cycle of a 15 day cycle.  I had to balance those cycles out then put them all together and it was a balancing finding out first the three dominate ones and giving it each an equal weight and then how far out can that help me project and I found out about three months.  I really cannot project out much more than three months with a lot of accuracy.  But gosh to know three months in advance what the market is going to do, that’s wonderful!

Do I combine this with the intermarket analysis the other intermarket analysis I can do with TradeShark?

Sure, you could use some of the TradeShark indicators, but the big thing how you combine all this, oh there is a cyclical low coming up two months from now, we can see that that far in advance, OK, I’m going to put a little star on my computer, little sticky note, when I get into that time period then I want to look at maybe the other Larry’s indicators, my indicators and some of the neural networks stuff that they have in TradeShark.  So then you can say, OK, I know the time is right now, let’s have confirmation, because making money in the market is a lot like those locks, remember when you were a kid you had a little lock on your locker in high school and you had to get one number and another, the number 3 this way, 4 that way then the lock would open up.  It’s a combination of ingredients that makes it successful to trade, not just one tool, but a lot of things are speaking about a market going to rally.  It’s going to rally.

That’s a good point you bring up, I know a lot of traders want to see as many things line up as possible but they almost wait too long, they want to see a perfect storm or a perfect trade and that’s probably not realistic, is it?

Everybody’s waiting for the jury to come in and say he’s guilty.  We can’t wait that long because that’s the high in the marketplace.  That’s why I want to look at professional accumulation in the marketplace.  Especially now, you know the markets have changed from when I first started trading, there was no electronic trading, we had pit sessions.  The way we professionals accumulate now is different in the electronic market so I developed an indicator for that.  My electronic accumulation index.  That lets me see what’s going on in these electronic markets, so you can see..ahhh money is coming in.  What actually happens price comes down a little bit, money comes in, comes in, then prices take off and then the accumulation may actually start to drop out of the marketplace because they bought now they need the rally and they’ll start selling taking profits on the rally.  It’s a little different ball game, prices change from 2002 forward, big difference.  We went into electronic sessions, how you measure markets change from 2002 into today’s markets thanks to the electronics.  There is a lot of advantage to electronic trading but we had to adjust for that and now we can measure that because the accumulation comes in then prices move up.

And that’s what you want, you want to follow the smart money quote un quote to do what they’re doing right, because they are usually the ones that are making money.

Yeah, you know I’m not a particularly smart guy myself, but I’m smart enough to follow people that are smarter than me and that’s how you find success in the marketplace.  I can tell when these people are buying, I’ve learned that from a lot of my friends, I know how they buy and sell.  I have friends that are traders worth billions of dollars.  I know how they trade, knowing that means that I can go into the market, I can pull out how they are actually trading in the marketplace or generally speaking or that group of inform money is, just like when I was a kid growing up in Montana when deering with my Dad, oh look, there’s 3 deer here, one’s a buck, one’s a doe.  You can read the tracks in the forest.  Same thing you can read the tracks in the markets.

Are these indicators that are exclusively in TradeShark, is it kind of the accumulation of your trading knowledge of these 50 years kind of putting into this and giving traders the best possibility of success?

Well, I don’t know all, that’s a pretty encompassing term.  What I wanted to do in TradeShark, say, here’s some really powerful tools, I’ve developed, they’ve been proven by myself and other people, they are going to simplify your trading, they will help you focus, they will give you insight into the market that you haven’t had before.  Most people can just look at the chart and try to figure out what it means.  It’s like if I gave you a book in Russian and you can’t read Russian, well, I don’t know what this means because nobody’s taught you the language.  So I am able to compress all this, distinctly let you see how markets work, how they actually operate.  It will be easier for you to trade.

Alright, thanks for your time.

My pleasure Tim, thank you.

We have been talking with Larry Williams about his indicators exclusively in TradeShark.

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