Tuesday, May 25, 2010
Welles Wilder - father of RSI & SAR (a biographical sketch)
a leader among technical analysts
the inventor of RSI and Parabolic SAR besides many other technical indicators.
Between high school and collage worked as an automobile mechanic, joined Navy and became an aeroplane mechanic.
After the Navy, graduated with a degree in Mechanical Engineering from North Carolina State College.
After seven years left engineering and got into Real Estate and Land development business!
Built 1,035 apartments in five cities in North Carolina and Virginia with two other people.
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 his two partners offered to buy his share of the projects.
Thus, at 38 years age, Wilder had "all the money needed" and "nothing to do"!
Became interested in trading commodities because "they are even more highly leveraged then like Real Estate".
Initially, made a lot of money in Silver.
Soon learnt that one can also lose money trading commodities.
So he stopped trading and began to get into technical analysis in the early to mid seventies.
Wrote and self published his first book, NEW CONCEPTS IN TECHNICAL TRADING SYSTEMS in 1978.
In the New Concepts book, he introduced 4 new automatic trading systems.
The Parabolic Time/Price System,
The Volatility System
The Directional Movement System, and
The Swing Index System.
the first momentum oscillator to put all commodities and Stocks on one scale
Also, developed an automatic visual trading system called The Reverse Point Wave system.
"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."
"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."
"Letting your emotions override your plan or system is the biggest cause of failure."
"Some traders are born with an innate discipline. Most have to learn it the hard way."
"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."
"If you can't deal with emotion, get out of trading."
"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, forget the trade. Most importantly, do not increase the risk if the trade is going against you.