Larry Williams's investing rules

It's all about survival.

No platitudes here, speculating is very dangerous business. It is not about winn
ing or losing, it is about surviving the lows and the highs. If you don't surviv
e, you can't win.
The first requirement of survival is that you must have a premise to speculate u
pon. Rumors, tips, full moons and feelings are not a premise. A premise suggests
there is an underlying truth to what you are taking action upon. A short-term t
rader's premise may be different from a long-term player's but they both need to
have proven logic and tools. Most investors and traders spend more time figurin
g out which laptop to buy than they do before plunking down tens of thousands of
dollars on a snap decision, or one based upon totally fallacious reasoning.
There is some rhyme and reason to how, why and when markets move - not enough but it is there. The problem is that there are more techniques that don't work,
than there are techniques that do. I suggest you spend an immense and inordinate
amount of time and effort learning these critical elements before entering the
foray of financial frolics.
So, you have money management under control, have a valid system, approach or pr
emise to act upon - you still need control of yourself.
Ultimately this is an emotional game - always has been, always will be.
Anytime money is involved - your money - blood boils, sweaty hands prevail, and
mental processes are shortcircuited by illogical emotions. Just when most trader
s buy, they should have sold! Or, fear, a major emotion, scares them away from a
great trade/investment. Or, their bet is way too big. The money management deci
sion becomes an emotional one, not one of logic.
Greed prevails - proving you are more motivated by greed than fear and understan
ding the difference.
The mere fact you are a speculator means you have less fear than a 'normal' pers
on does. You are more motivated by making money. Other people are more motivated
by not losing.
Greed is the trader's Achilles' heel. Greed will keep hopes alive, encourage you
to hold on to losing trades and nail down winners too soon. Hope is your worst
enemy because it causes you to dream of great profits, to enter an unreal world.
Trust me, the world of speculating is very real, people lose all they have, mar
riages are broken up, families tossed asunder by either enormous gains or losses
.
My approach to this is to not take any of it very seriously; the winnings may be
fleeting, always pursued by the taxman, lawyers and nefarious investment scheme
s.
How you handle greed is different than I do, so I cannot give an absolute maxim
here, but I can tell you this, you must get it in control or you will not surviv
e.
Fear inhibits risk
Fear causes you to
s that are winners
ated, greed causes
t we should do.

taking - just when you should take risk.

not do what you should do. You frighten yourself out of trade
in deference to trades that lose or go nowhere. Succinctly st
you to do what we should not do, fear causes us to not do wha

Fear, psychologists say, causes you to freeze up. Speculators act like a deer ca
ught in the headlights of a car. They can see the car - a losing trade, coming a
t them - at 120 miles per hour - but they fail to take the action they should.
Worse yet, they take a pass on the winning trades. Why, I do not know. But I do
know this: the more frightened I am of taking a trade the greater the probabilit
ies are it will be a winning trade. Most investors scare themselves out of great
ness.
Money management is the creation of wealth.
Sure, you can make money as a trader or investor, have a good time, and get some
great stories to tell. But, the extrapolation of profits will not come as much
from your trading and investing skills as how you manage your money.
I'm probably best known for winning the Robbins World Cup Trading Championship,
turning $10,000 into $1,100,000.00 in 12 months. That was real money, real trade
s, and real time performance. For years people have asked for my trades to figur
e out how I did it. I gladly oblige them, they will learn little there - what cr
eated the gargantuan gain was not great trading ability nearly as much as the ve
ry aggressive form of money management I used. The approach was to buy more cont
racts when I had more equity in my account, cut back when I had less. That's wha
t made the cool million smackers - not some great trading skill. Ten years later
my 16-year-old daughter won the same trading contest taking $10,000 to $110,000
.00 (The second best performance in the 20-year history of the championship). Di
d she have any trading secret, any magical chart, line, and formula? No. She sim
ply followed a decent system of trading, backed with a superior form of money ma
nagement.
Big money does not make big bets.
You have probably read the stories of what I call the swashbuckler traders, like
Jesse Livermore, John 'bet a millions' Gates, Niederhoffer, Frankie Joe and the
like. They all ultimately made big bets and lost big time.
Smart money never bets big. Why should it? You can win big on small bets, see #5
above, but eventually if you bet big you will lose - and you will lose big.
It's like Russian Roulette. You may well spin the chamber holding the bullet man
y times and never lose. But spin it often enough and there can be only one resul
t: death. If you make big bets you are destined to be a big loser. Plunging is a
loser's game; it can only set you up for failure. I never bet big (I used to been there and done that and trust me, it is no way to live). I bet a small per
cent of my account, bankroll if you will. that way I have controlled loss. There
can be no survival without damage control.
God may delay but God does not deny.
I never know when during a year I will make my money. It may be on the first tra
de of the year, or the last (though I hope not). Victory is out there to be gras
ped, but you must be prepared to do battle for a long period of time.
Additionally, while far from a religious person, I think the belief in a much hi
gher power, God, is critical to success as a trader. It helps puts wins and loss
es into perspective, enables you to persevere through lots of pain and punishmen
t when you know that ultimately all will be right or rewarded in some fashion. G
od and the markets is not a fashionable concept - I would never abuse what littl
e connection I have with God to pray for profits. Yet that connection is what ke
eps people going in times of strife, in fox holes and commodity pits.

I believe the trade I'm in right now will be a loser.

This is my most powerful belief and asset as a trader. Most would be wannabes ar
e certain they will make a killing on their next trade. These folks have been to
some 'Pump 'em up, plastic coat their lives' motivational meeting where they we
re told to think positive thoughts. They took lessons in affirming their future
would be great. They believe their next trade will be a winner.
Not me! I believe at the bottom of my core it will be a loser. I ask you this qu
estion - who will have their stops in and take right action, me or the fellow pu
mped up on an irrational belief he's figured out the market? Who will plunge, th
e positive affirmer or me?
If you have not figured that one out - I'll tell you; I will succeed simply beca
use I am under no delusion that I will win. Accordingly, my action will be that
of an impeccable warrior. I will protect myself in all fashion, at all times - I
will not become run away with hope and unreality.
Your fortune will come from your focus - focus on one market or one technique.
A jack of all trades will never become a winning tradee. Why? Because a trader m
ust zero in on the markets, paying attention to the details of trading without a
llowing his emotions to intervene.
A moment of distraction is costly in this business. Lack of attention may mean y
ou don't take the trade you should, or neglect a trade that leads to great cost.
Focus, to me, means not only focusing on the task at hand but also narrowing you
r scope of trading to either one or two markets or to the specific approach of a
trading technique.
Have you ever tried juggling? It's pretty hard to learn to keep three balls in t
he area at one time. Most people can learn to watch those 'details' after about
3 hours or practice. Add one ball, one more detail to the mess, and few, very fe
w, people can make it as a juggler. It's precisely that difficult to keep your e
yes on just one more 'chunk' of data.
Looks at the great athletes - they focus on one sport. Artists work on one prima
ry business, musicians don't sing country western and Opera and become stars. Th
e better your focus, in whatever you do, the greater your success will become.
When in doubt, or all else fails - go back to Rule One.