Larry Williams - How I Made One Million Dollars Trading Commodities Last Year

This is one of the classic books written about commodity trading. Many commodity traders are always looking for the latest and greatest trading books, however, most veteran traders know that the “old” books are usually the best.

Larry Williams is a household name among the commodity trading community. This book was written in the early 1970s during a bull market in commodities. The book does contain valuable information on trading commodities but it is not a step-by-step guide on how he made his million dollars trading commodities as the title might imply.

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.

These are all sound commodity trading principles. The rules of entering positions are not very specific, so I am a bit worried that new traders might get lost.

• Never invest more than 30% of your equity--20 % for new traders.

• Do not trade more than 6 markets at a time.

• When you feel like you cannot lose, that is the time that you will probably blow up.

• You should risk no more than 5% of your capital on any trade.

This may be one of the most important parts of the book. Almost all successful commodity traders abide by money management rules similar to these.

The author also discusses many techniques to incorporate into your commodity trading to increase you odds. Some are helpful and some are vague or irrelevant in this day.

There is an excellent chapter on the psychology of trading commodities. The mental part of trading is a critical aspect of trading. If your head is not right, chances are you will not make money. For anyone who is a habitual loser in trading commodities, I strongly urge you to read this section or other books on the psychology of trading.

Larry Williams is still writing books, selling newsletters and trading. I would not rank Larry Williams as one of the all-time greats of commodity trading, but he has provided us with a lot of valuable research through the years on commodities and trading. I have found many of his methods to be profitable and I also discovered some good techniques that he has passed along from other traders.

This book is a required reading for those who study commodity trading. The mere fact that he made a large sum of money in a short period of time is more than worth reading about. There are numerous trading tips in this book that make it worth your time and money. How I Made One Million Dollars Trading Commodities Last Year is a definite addition to any commodity traders library.