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J. Welles Wilder Jr. - Market Master
Neil A Costa
J. Welles Wilder Jr. stated his working life as a mechanical engineer, and remained an engineer for just seven years. This overlapped with his investing in the real estate market which he then did full time for a few years. His partners bought him out in the early 1970s.
He commenced 13 years of full-time market research and trading in his ‘retirement’. He became interested in buying silver, and concluded that futures were the best way to gain leverage and tried to learn all he could about futures markets.
The Contributions of J. Welles Wilder Jr. to Technical Analysis
Mr. Wilder has written many articles on trading, appeared on numerous radio and television programs, and conducted technical trading seminars in Asia, Australia, Canada, USA, and Europe. He also developed software through his company Trend Research, Ltd. Australia’s Dawn Bolton-Smith is proud to say she attended two of Mr. Wilder’s seminars in Sydney – in 1986 and 1992. She is also a keen user of the software he developed, ‘One Day at a Time’ (ODAT).
Welles Wilder is best known for his technical indicators – now considered to be core indicators in technical analysis software. These include Average True Range, the Relative Strength Index, Directional Movement and the Parabolic Stop and Reverse.
The following is a candlestick chart of News Corporation, showing Welles Wilder’s Parabolic S&R (dotted lines on the chart itself), his Directional Movement Index and his Relative Strength Index respectively.
Chart 1 – A Gann Analyst 3 Chart of News Corporation
Being a trader at heart, Mr. Wilder understood what were the real factors that determined whether a trader was likely to be successful or not. In an interview in Technical Analysis of Stocks and Commodities magazine, he stated:
… I’ve found that the most important thing in trading is always doing the right thing whether or not you win or lose… this is market savvy… money management... I would go so far as to say that whether one makes money in the markets depends on whether or not one uses the proper money management – how much you make depends on where you enter and exit the markets.
(Wilder, J. Welles., ‘Wilder’s Back’, Technical Analysis of Stocks and Commodities, February 1986.)
J. Welles Wilder Jr wrote three books, New Concepts in Technical Trading (published in 1978), The Adam Theory of the Markets (1987), and The Delta Phenomenon (1991).
New Concepts in Technical Trading Systems
(Wilder, J. Welles Jr., New Concepts in Technical Trading Systems, Trend Research, McLeansville, NC, 1978.)
First there were the masters – Dow, Gann, Elliott. Each advanced our knowledge of technical analysis.
Then there was a quantum leap. This quantum leap occurred in 1978 when J. Welles Wilder Jr. published his book, New Concepts in Technical Trading Systems.
In this book Wilder published six technical trading systems. The three considered to be the most significant were the Directional Movement Index, the Parabolic Stop and Reverse and the Relative Strength Index (RSI). Writing this book established Wilder's reputation as one of the world’s leading technical analysts.
The book is divided into 10 sections, as follows:
Section 1 - Basics, The Missing Part of Most Trading Plans
Section 2 - The Parabolic System
Section 3 - The Volatility Index, the Volatility System
Section 4 - The Directional Movement Concept, The Directional Movement System
Section 5 - The Momentum Concept, The Trend Balance Point System
Section 6 - The Relative Strength Index
Section 7 - The Reaction Trend System
Section 8 - The Swing Index, The Swing Index System
Section 9 - The Commodity Selection Index
Section 10 - Capital Management
The Adam Theory of Markets
(Wilder, J. Welles Jr., The Adam Theory of Markets or What Matters is Profit, Trend Research, McLeansville, NC, 1987)
The Adam Theory is about what will make a trader successful. This unusual book shows why the ideas possessed by many traders prevent them from being profitable traders. The book comes to a very simple, but vitally important conclusion about trading – the Adam Theory. Of course, you will not enjoy the book as much if I were to reveal the ‘secret’ in this article! I am sure you already know what it is – but maybe you do not appreciate its importance.
The Adam Theory of Markets is divided into 33 chapters:
1. Adam is...
2. A Fairy Tale
3. To Succeed in Markets We Must...
4. There really is a lot less trading than meets the eye
5. What Matters in Markets? - Price
6. 'Is' versus 'Should'
7. Avoid Arbitrariness
8. Trading Systems
9. What Matters in Markets? - Trend
10. What is a Trend
11. What is the Most Basic Form of repetition?
12. What does Exact Repetition Lead To?
13. What Leads to the Greatest Symmetry?
14. Projecting The Second Reflection
15. Constructing the Second Reflection Chart the Easy Way
16. What does the Prediction Contain?
17. Which Markets to Trade?
18. Review of Market Selection
19. How about Tops and Bottoms?
20. The Most Important Statement About Markets
21. Let Your Profits Run
22. What if we get Stopped Out?
23. Discipline
24. Review of Adam Theory
25. When do we Enter a Trade
26. Market Example - Eastman Kodak
27. Recap of the First Example
28. The Ten Trading Rules
29. The Ten Rules Expanded
30. Market Example - Eastman Kodak
31. Market Example – Coffee
32. Visualisation
33. The Playful Commodity Trader
Appendix
The Delta Phenomenon or The Hidden Order in all Markets
(Wilder, J. Welles Jr., The Delta Phenomenon, The Delta Society International, McLeansville, NC, 1991)
In the early 80's, Welles Wilder® founded the Delta Society International. His purpose was to share the “secret of the perfect order behind the markets”.
This order, the Delta Phenomenon, is the basis of all market movement relative to time. It is the basis of all technical analysis. It is the most basic thing about markets. It is the beginning point. All other methods of technical analysis pale when compared to the fact that there is perfect order in all markets. As you will learn, the Delta Phenomenon is perfect. That is, it always follows the defined discipline that rules it. I have solved the Delta Phenomenon for many different markets over hundreds of years of data and I have never seen a failure in this order.
(Wilder, J. Welles Jr., The Delta Phenomenon, The Delta Society International, McLeansville, NC, 1991, page 41.)
Part 1 The Delta Phenomenon
Part II The Moment of Truth
Part III Intermediate Term Delta (ITD)
Part IV The Family Groups
Part V Medium Term Delta (MTD)
Part VI Long Term Delta (LTD)
Part VII Super Long Term Delta (SLTD)
Part VIII Short Term Delta (STD)
Part IX Trading the Delta Turning Points
Part X Solving for Delta
The marketing of The Delta Phenomenon was a very controversial undertaking, despite allegedly earning Mr. Wilder some US$7+ million from sales.
Conclusion
J. Welles Wilder is possibly the best-known market guru alive today. His contribution to technical analysis has been, to say the least, very substantial. It is appropriate to conclude this article with a selection of the accolades he has received during the last three decades:
Forbes Magazine (October, 1980) – Welles Wilder is "the premier technical trader publishing his work today."
Barron's (July 1984) - "In 1978 the basis of mathematical analysis was expanded when J. Welles Wilder, Jr. published New Concepts in Technical Trading Systems.
Financial World (July 1985) - "Over the years, Wilder has developed more accurate commodity trading systems and concepts than any other expert."
Technical Analysis of Stocks and Commodities(February 1986) "It's not often that truly original discoveries are made in technical market analysis. J. Welles Wilder, however, lays claim to an entire collection of systems that have reshaped contemporary commodities trading and analysis.”
Technical Analysis of Stocks and Commodities (October 2002), in an article titled The Titans of Technical Analysis, Welles Wilder was selected as one of the ‘Heroes of Technical Analysis’ with the following accolade:
J. Welles Wilder engineer, turned real estate developer, turned technical analyst, Wilder is credited with developing some of the most widely used and modified technical indicators in the field, from Average True Range to the Parabolic Time/Price System to the Relative Strength Index. His first book, ‘New Concepts in Technical Trading Systems’, remains an important reference for both stock and futures traders.
Now in his 70s, Mr. Wilder has retired and resides on the beautiful South Island of New Zealand.
J. Welles Wilder Jr. is, without any reasonable doubt, a market master.
[This article was first published in the ATAA Journal, July/August 2004. Reprinted with permission.]
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