We all learn best by using examples and looking at models. And what better way to learn how personality influences trading style and success than to carefully dissect the personality of one of the world’s greatest living traders? Luckily I have at my disposal my father, Larry Williams.
In order to better understand how a serious and experienced trader can make use of personality testing, Pops agreed to go under the “personality microscope” known as the NEO-AC, as well to engage in a discussion about what his results mean to him and how he has seen his personality traits at work as a market trader. I think you will benefit from observing how this process works.
First some background. As many of you may know, my father is quite well regarded as an individual futures market trader. That is, he primarily trades his own money for himself. He has been doing it for a long time, in fact well before I was born. He (still) holds the record for best performance ever in the Robbins World Trading Cup, when in 1987 he turned $10,000 into over $1 million in just one year. He is also known for his “Million Dollar Challenges”—in which, to prove he is a genuine market trader and not some guy who makes all his money selling books and lecturing, he bravely trades a million dollars’ worth of real futures contracts live, in front of his students—and he lets them keep 20 percent of the profits!
To be clear, Dad is much more than a market trader. He has had his hands in so many different projects and endeavors over the years, from politics to boxing promoter to far flung Indiana Jones-like treasure hunting expeditions, that it’s impossible to try to define Dad. He is a unique, one of a kind marvel. But at the end of the day, the one activity that Dad keeps coming back to, the one hat that he can never put down, is being a futures trader. It’s what he enjoys the most and what he is best at.
Of course my father, like all traders, has had his share of losing trades, market heartbreaks, large drawdowns, and mindless blunders. If you have ready any of his books, you know he does not hide his mistakes from his students. But you would be hard-pressed to find a genuine market speculator who has been more consistently successful over as long a period of time as my father has been, this being his sixth decade as a full-time trader. Growing up as his son, watching Dad go through such dramatic ups and downs in his life, often I was left scratching my head as to the motivations and meanings of some of his behaviors, ideas, and emotions. As I became educated and trained as a psychiatrist, I began to learn more about what makes my very unique dad “tick” and how my position as a psychiatrist can actually assist him in having a better understanding of himself.
Even then, it was only after he took the full NEO-AC that aspects of his personality were laid open and really elucidated. The NEO-AC helped explained how and why he trades the markets, what makes him a winning trader, what things he needs to avoid, and what he still needs to work on to hone his craft as a trader. His personality test results were illuminating, not only to me, but more important, they explained a lot to him. He was stunned by the insight that the personality test afforded him, and he asked that I share his results with you in order that you, too, might gain a deeper appreciation of personality.
To be sure, the goal of this chapter is not for you to learn to trade like Larry. Nor is it for you to try to take on exactly the same personality as Larry. There is only one Larry, and besides, you are largely stuck with the personality you were given. The purpose here is to help you understand how to interpret and then apply the results of professional personality testing to trading the markets. My father did not take his NEO-AC until 2010. I can only wonder how much more successful a trader he would have been if he had these insights going back to the 1960s, when he first set out to tame the markets! My father’s comments and insights are provided for your further understanding as well.
NEUROTICISM
My father’s overall neuroticism score is only moderately low (N = 54). This means that, in general, he does not experience strong negative emotions in response to stressful situations. The breakdown of Dad’s N score by facets is interesting. He is low in anxiety (N1 = 6), anger (N2 = 7), and depression (N3 = 4), and very low in vulnerability (N6 = 3). These are critical human emotions that often get in the way of the cognitive processes (higher cortical functions) of trading. For reference, keep in mind that N1 and N6 were the two neuroticism facet scores that were low or very low across the board for our successful traders.
When a trade turns bad, negative feelings—anxiety, depression, and anger—can really cause a snowball effect, as one is no longer able to cognitively function at full capacity. In Dad’s case, this is something he does not have to work on so much; he has an innate ability to keep those feelings in check during stressful times.
But of all the neuroticism facets it is in the domain of vulnerability (N6 = 3) that he scores the lowest. This is a very low vulnerability score. And remember, it’s the extreme scores that are most telling. People who score very low in vulnerability, like Dad, perceive themselves as being capable of handling themselves in difficult situations. They feel invulnerable. Don’t confuse this with a person’s level of confidence, which is measured on the conscientiousness (C) scale. A very low N6 means that my father does not feel weak when confronted by challenging, or even emergently precarious, situations. In fact, he thrives and probably prides himself on being able to handle such stressful times. However, too much of anything is not good. If he is not careful, this trait can also work against him. A very low N6 can indicate that a person is at risk of failing to appreciate his own limitations. On an emotional level there may be times when he does not recognize the signs of a failing or losing trade.
LARRY: Until now I did not see the downside, that if I think I am capable of handling a difficult situation, then I tend to not pass them by. My adventures in Turkey, Iran, and Saudi Arabia (see The Gold of Exodus by Howard Blum), along with my treasure-hunting expeditions in the southwestern United States are great examples of me not perceiving danger and feeling invulnerable. Similarly, my two failed runs for the United States Senate in my home state of Montana, while an amazing experience, were ill fated. Like Don Quixote, I now see these very low readings probably overrode whatever intelligence I should have applied to the facts at hand.
It is one thing to do things that make others shake their heads at my actions. But only all too often, as in my IRS battle, I was shaking my own head at the things I did. But it also has a good side; nobody with my simple background would be expected to ever do the things I have done in life (become a trader, author, and so on), so the the feeling of being impervious that governs my emotions does have a healthy side. I now see—I hope—how to use this force more positively.
Fortunately for my father, in trading there is the concept of a “stop loss.” He has learned to use this simple trading mechanism on any and all trades he places. It’s a very handy safety brake that is automatically engaged when a trade starts failing and his emotions (especially his low scores on the N facets) don’t pick up on it in time, such as when he is feeling invulnerable. In fact, if you read my father’s books, you will learn that the art of money management and limiting losses by utilizing stops is a very important component of his trading style—just as important, if not more, as the buy and sell patterns he uses.
LARRY: My early lack of intelligence as a trader resulted in some massive profits—and massive losses—as I did not use stop losses or intelligent risk control. It was not my intelligence that eventually won the day; it was my drive to survive and learn how to bypass all the wild emotions that markets swings can cause. Being burned is how I learned. I studied my winning campaigns, but was more diligent in analyzing my losses.
My father actually scores high on one of the neuroticism facets. That is on impulsivity (N5 = 19). High impulsivity scorers tend to have difficulty controlling their urges to do something. They leap before they look. This one-two combo of high impulsivity and low vulnerability could potentially be quite problematic. Although his N5 score is not extreme, it is high enough that it could get someone into hot water from time to time. In trading, this would pan out as entering (or exiting) a trade without first fully evaluating the situation, and it often results in overtrading. The impulsive trader has to make the extra effort to restrain his urges.
LARRY: This was even more so when I was younger. Getting beat up by the markets may be one of the best ways to adapt to your personality, better than anything my son ever studied at the ivory towers of Johns Hopkins. I eventually learned, as all successful traders do, that there are rules to winning as a trader and that some strategies just don’t work. I feel that the markets have definitely altered my personality, and I was lucky that I was making money early on, because I have seen some people destroyed by early failure in the markets. In trading, even now, I have the urge to plunge. I guess it is stronger in me than in most people, which means I need to learn more control of it than most people do.
Again, it is possible for one’s higher cortical functions (intelligence) to override one’s feelings. This takes training, experience, and, probably more important, it takes great insight. The impulsive person has to first realize and admit to himself that he is prone to making rash decisions—such as plunging recklessly into trades that he has no business getting into. Second, he needs to identify what it is that is prompting him to impulsively place a trade. Can he identify a trigger or scenario that repeatedly causes him to leap? Last, he needs to install some kind of monitoring system that will “ring a bell” the next time such a situation arises. And it is only through this process that a highly impulsive trader matures, growing in his understanding of his innate traits and how to use them to his advantage. Remember that impulsivity, to the right degree and applied correctly and with wisdom, can also be extremely advantageous to trading the markets. It’s harnessing it and applying it at the right time that matters.
LARRY: I have certainly set up my own set of warning “bells”—I even repeat certain key phrases that are triggered when this part of my personality tries to kick me out of the driver’s seat. While I always use stops, in the past I had a tendency to move them (back them off) as the market approached them. Sure, that was helpful: about two out of every hundred times. Now when I “see” myself doing that, I repeat my promise, “never again, Larry, you know this is a sucker’s play.”
EXTRAVERSION
My father scores very high on the total extraversion scale (E = 147). In fact, he scored the maximum points possible on both the warmth (E1) and positive emotions (E6) scales. Anytime someone maxes out on a facet, you want to pay particular attention, as very few people max out on a facet. So something is going on here. Of these two maxed-out scores, E6 probably comes into play the most in trading the markets.
Being that high in positive emotions, my father has a tendency to feel overly happy, cheerful, and optimistic. You may be asking yourself, “Is it even possible to be too happy and cheerful in life?” Wouldn’t it be a good thing to score a whopping 32 on the positive emotions scale? Wouldn’t we all want that?
But remember, a person with an E6 score of 32 is frequently going to be viewing his world through rose-colored lenses. He is at risk of overlooking or filtering out the negative aspects of situations. Having an extremely high E6 score, in conjunction with low N scores, and in particular the low vulnerability score, suggests that Dad may neglect bad, dangerous, or harmful things. Even when he does see dangers for what they are, he may underestimate their ability to have a negative effect on him, as he may feel impervious to them.
LARRY: Reading this is painful, to have a son I love be able to see right through to the center of all my faults. He is correct. I think I handle my extraversion better now than I did in my youth. And I also think that, had I realized this trait in my youth, I never would have become a “public figure” commodity guy. At times I wish I had chosen to take the more profitable route of being a money manager. But I also realize that would have been very difficult, unless I would have worked through these personality aspects. For a while I did manage funds, but soon learned it was not for me. Why this was so was a mystery. And what I could have done to alter that escaped me, until just now, seeing my personality scores. In short, I was unable to clearly see my weaknesses, so it was nearly impossible to respond in a more correct fashion. It turns out I have allowed my positive expectations to override good judgment. Yet, a trader needs to be positive, not necessarily about the current trade, but about the fact he or she will be successful and become a winning trader.
Again, in conjunction with a very low N6 (vulnerability) score, his very high E6 underscores the importance of my father placing stop losses with his trades; he will be the first to tell you how huge this is. Stops are an incredibly important tool that will limit the hits he may take during times he is feeling invulnerable to stress (very low N6) or because he is thinking everything is going along fine with his trade (very high E6). Stop losses are a defense strategy that he has learned to master, as they help him limit the influence of his temperament on his trading. Over the decades of learning how to expertly apply stop losses, my father probably never even realized he was very low in N6 and very high in E6. It was only after taking the NEO-AC that it crystallized in his mind why stops are so critical for his personal temperament and trading style.
LARRY: Point well taken. Definitely I have learned that I cannot count on my positive attitude to ensure market profits, and this is one more reason I need a form of carefully placed protection (stop losses).
OPENNESS
You don’t even want to get me started talking about how open-minded my father is. The whole family knows this and has learned to live with it. We still love him just the same, despite his tendency to be wide open and prone to some pretty fanciful, wild, and occasionally even crazy ideas. Trust me: We did not need the NEO-AC to tell us that Dad is off the charts in openness. But just for the record, his total openness score is a flabbergasting (O = 163). Professionally speaking, that is the highest total O score I have ever come across. While he did not max out on any of the individual O facets (as he did on two of the E facets), keep in mind that extreme scores in one of the five main personality domains (N, E, O, A, or C) are generally going to be more relevant than extreme scores on any single facet.
LARRY: My view is that this is correct. And I never really realized just how extreme in the openness trait I am, until I saw the results of my personality test, but it sure helped explain a lot of things in my life. I think it’s a two-edged sword. I have been burned by being so open, but it has also allowed me to open doors and to have experiences in life that others would have shied away from. For example, I have studied all sorts of market theories because of this open door policy, ranging from the most serious to the most oddball and eclectic ideas. I have always been willing to explore anything and everything that might in some way contribute to my understanding of the markets. Don’t laugh, but I have even studied lunar patterns to markets—and have even found some genuine usefulness there!
Not only does he score very high in fantasy (O1), aesthetics (O2), feelings (O3), and ideas (O5), but when it comes to the openness facet that most relates to risk aversion, actions (O4 = 20), his score is also relatively high. It’s not off the charts high, but it is certainly high, higher than that of many other stocks and commodities traders I have studied. Remember, a high O4 indicates a trader who is a risk-taker for the purpose of fulfilling “greedy” desires (wanting to make money and be afforded the privileges that money can offer).
But what about Dad’s other risk taking facets—the ones that are associated with taking risks more for the thrill and excitement of it? He scores high in these facets, as well (N5 = 19, E5 = 21). The combination of these NEO-AC risk-taking scores (especially E5 and O4) really goes to show that my father is all around a huge risk-taker. And, sure enough, he will be the first one to tell you that he likes trading (back to that earlier surfing analogy) the “big waves.”
LARRY: You only live once. I want to experience this life to its fullest. And in the end, it will all work out for the better, one way or another. That has always been my life’s mantra.
In fact, when discussing this with Dad in detail, I find that he has even convinced himself that the only way to make decent money in the markets is to hitch a ride on the giant swings in the market. He believes that trying to catch multiple medium-sized trades is not going to be profitable in the long term. His rationale is that there are bound to be huge losses along the way, and the only way to make up for them is to have some really huge gains. So he is always on the lookout for the major moves in markets.
Is he right? Is catching and then staying on the big swells the only way to make money trading the markets? Well, yes and no. For himself he is indeed correct, and he should not try to change this outlook because it works well for him. He would likely get bored and lose focus trading small moves in the market, and the end result would likely be failure. But I have talked to very successful market traders who are terrified of riding out the big bull and bear runs. These traders are much more content and comfortable with pinpointing more modest turns in the markets and taking a quick profit on each one, before any potential intratrade volatility starts to freak them out. And of course, with this more conservative trading philosophy, these lower-risk traders are less likely to sustain huge hits and drawdowns, so they don’t need monster trades to save their day.
LARRY: I still contend that small-profit traders don’t last long. This has nothing to do with personality, but the math of investment. I have written about that.
Keep in mind, of course, that everything is relative. A “small-profit trade” to my dad may look like a medium-profit trade to someone else who is more risk averse or vice versa. Very few futures traders are going to be low in the trait of risk-taking. In fact, my dad is a bit of an anomaly compared to most of the other successful traders I tested and interviewed for this book. Most of them had either average or only slightly elevated risk-taking tendencies.
One more thought about my father’s incredible degree of openness. Appendix B discusses personality styles and how to determine them. The way you do this is to plot the most extreme scores for the big five traits (N, E, O, A, and C) against one another. In my father’s case, the two domains that he had extreme scores in were very high E and O. If you turn to the “Style of Interests” section of Appendix B and read the description of O+, E+ (right upper quadrant page 203), you will basically be reading a very accurate description of who my dad is at his core!
AGREEABLENESS
The agreeableness (A) scale probably has less relevance for traders than for the others, but for completeness’ sake I will not skip over how my father fared here. In particular we will see how the confluence of A with other traits speaks loudly about who my dad is.
First, he scores in the very high range on trust (A1 = 29). This level of trust in others, in combination with his incredible degree of openness (especially O5, ideas) leaves him wide open to abuse and manipulation at the hands of others. The markets themselves are not able to take advantage of such a gullible and naive individual, as the markets do not have a mind of their own. But my father is very susceptible to being taken advantage of by shrewd and cunning people. Hence, you may have heard about my father’s little IRS troubles he got into after he followed the advice of some very disreputable and exploitive tax advisors. You can read about it in his book, Confessions of a Radical Tax Protestor.1 In this case, his eventual fight with the IRS (which he won, by the way) probably diverted a lot of his attention from his two true passions in life: trading the markets and spending time with his family. There was probably a big legal bill at the end of the day, too. So although his high levels of openness and trust may not have directly affected his trading lifestyle, certainly they did indirectly.
LARRY: It cost me several million dollars to become aware of all of this, and even then I did not see that my willingness to trust was a large weakness. I needed to become aware of that. A long-time secretary that I trusted like a member of our family embezzled over $1,000,000 from right under my nose. Then, I was lead into the “tax resistance” community by a great friend and lawyer that I just assumed knew what he was talking about. I also followed the advice of some CPAs because they worked for Big-Eight firms. I tossed away several million dollars in bad investments, simply because I trusted people I knew too much. At times I even did big business deals on nothing but a gentleman’s handshake and with no contracts to back it up. Nowadays, I trust but verify. In fact, just recently somebody I deeply respect and admire presented me with a very tempting business opportunity. I was ready to push my chips all in, but then took a step back, realizing this was a similar pattern to that which had spelled disaster for me in the past. Had I not known of this aspect of my personality, I likely would have lost a sizable amount of money. So I guess it really does pay to get to know your personality.
On the straightforwardness facet my father scores very low (A2 = 13). This score indicates that he can be very clever and use circuitous or oblique ways to mentally solve problems. His mind can operate well in nonlinear thought patterns. So it is an interesting combination: he is someone who is mentally agile, but at the same time he is someone who is subject to being taken advantage of by the shrewd.
People who are very low on the A2 scale have the propensity to be “pathological”—but only when this score is also seen in conjunction with low scores on a number of other telling facets. For example, if my father were also low in A3 (altruism), A4 (compliance), and substantially lower on a number of the conscientious facets, I would caution you about doing business dealings with him. As it turns out, though, he is high in altruism and compliance. So instead of this being a negative trait, his cleverness is much more of an adaptive and healthy trait that he can apply to solving complex puzzles. I suspect this is why he has developed innovative and creative market approaches, systems, and indicators, not just once, but for many years.
CONSCIENTIOUSNESS
Dad scores in the average range on the overall conscientiousness scale (C = 126). Interestingly, though, there are two conscientiousness facets in which he scores very low: C2 (order) and C6 (deliberation).
Now, I am probably about to reveal a personal secret about Larry Williams that many of you may never have known. Larry Williams, the great inventor of technical indicators (%R) used throughout the world, and Larry Williams the discoverer of some very powerful trading systems (Oops!), is really not a systems trader!
Sure, he uses indicators and systems, but not nearly as much as you may think. When I watch my dad trade, I am amazed by two things: (1) how disorderly his trading desk is (sorry dad, but I have to reveal this purely in the interest of research), and (2) he often trades by hunches.
Okay, he doesn’t really trade the markets on hunches; that’s of course an exaggeration thrown in to try to provoke a reply out of him. Because it’s not that there is no logic, rhyme, or reason to his trading style; obviously there is a huge amount of that. His trades are well educated, well researched, well calculated, and are even based on multiple systems and indicators. But, by and large, he is not truly trading via systems. There is not a master formula instructing him when to buy or sell a given commodity. Even with fancy computer software constantly helping him assess the current market situation, for the most part he prefers to reserve for himself the final judgment about if and when he is going to place a trade. His computers help him, indeed, but in the end he makes the call, not some software system. And he does so based on what he visually sees on his charts and monitors. It is a collective hodgepodge of data and indicators that he is constantly sifting through and sorting out, trying to decide when to get in or out of the markets.
Dad has commented to me many times that, when he tries to precisely follow his own systems or patterns, he usually fails in making money, even though some of his students, who are probably higher in C, will be very profitable doing just that, using his systems!
LARRY: Of course I don’t trade on hunches. But it is also true that I am not a strict systems trader. I see trading as an art that requires certain tools. I have tools that I use to set up trades, tools that tell me when and where to enter a trade, and tools that tell me when and where to exit a trade. I never feel as though a trade is going to be a big winner without having done some research that backs up the idea. To me a hunch is like an internal feeling, a voice whispering in the cobwebs of your mind or perhaps a sense of urgency to take this trade. I simply never feel that way. I know why I am putting on all my trades, and anyone who understands my work can agree.
My father is a great pattern analyzer. Probably his most proficient technical ability is in spotting market patterns in the here and now and deciphering what, if anything, they mean. His average to low C facets, along with a very high level of artistic creativity (his O1 and O2 scores are both sky high) and cleverness (very low A2), indicate that he is ideally suited to this style of trading. In particular, being low in C2 means that he will struggle trying to conform to a set of trading rules that he has to follow, regardless of what he really thinks or sees is developing in a market.
Dad is a very visual person: He sees symmetry and asymmetry, and he spots patterns far better than most of us. This is his strength. He will look at a given market chart up close and then roll his chair back away from his screen four or five feet and get a totally different perspective of exactly the same chart. But, when it comes time to making trades, he is generally not following systems. Larry Williams the great systems trader is, for the most part, a myth. Larry Williams is a great patterns trader.
LARRY: Like I said, to me trading is a form of art. But as to this point, son, you bring up a very valid issue. The irony of it has always amused and confused me. I would like to think that I have done some very creative market work, such as in the development of my Ultimate Oscillator, Valuations measures for futures, Synthetic Vix Index, and all the work I have done on the Commitment of Traders Report. Then there is the work I did with Tom DeMark developing Sequential, one of the most interesting techniques you will ever see. On top of that, I have developed many, many powerful trading systems of my own that never took on names or gained notoriety beyond being shared with some of my students. But the funny thing is I could never follow the damned things. The day-to-day mundane details of following a system are just not what I am cut out to do. I’d far rather do more research or just trade using my own “art of trading” strategy. For me, trying to religiously trade and follow a system is a fight I can never win. Why? Because I am only fighting myself, my own personality traits, when I do that. I have come to learn why that is a shoe that just does not naturally fit and never will. Thus, I can make a direct and conscious choice to not follow systems, even the ones I create, and learn to be OK with that. Or, I can follow systems, but in doing so, realize that I have to adapt to my “self” and be judicious in that task, as it is one that I tend to shirk.
Linda Raschke, when being interviewed for this book, told me a funny story: “Your dad once told me he was the best systems trader in the world. I asked him how he did it, since I am a discretionary trader. He said that the only way he could do it was to put a copy of the system on the desk of one of his trading buddies. He had his buddy trade it for him while he went off to fish the remote streams of Montana because he could not stand watching his money stuck in a system!”
I think it is clear that, over the years and decades, my father has adapted his trading style and methods to match his unique set of personality traits. Through trial and error, and probably with some painful lessons along the way, he has been able to figure out what works best for him. For him it comes down to identifying unique patterns and trends in the markets, waiting for the big move, high-risk trades, and controlling his losses with very carefully placed stops.
Mental Edge Tips
LARRY: The personality assessment’s greatest value, as I see it, is to help us create the trading style that best suits our individual temperaments and gives us an in-depth understanding of how to deal with risk. Lastly, it allows us to appreciate our personality traits as a whole and regulate them as needed when it comes to losing streaks or winning streaks (both in the markets and in other areas of our lives).