Al Weiss is a commodities trader who relies exclusively on charting techniques for his trades. In terms of return-to-risk ratio, Weiss is arguably one of the top long-term performers among all Commodity Trading Advisors (CTAs). Since he began trading in 1982 under the name AZF Commodity Management, Weiss has achieved a remarkable average annual return of 52%.

This means that if you had invested $1,000 with Weiss in 1982, by the end of 1991, that investment would have grown to nearly $53,000.

Al Weiss is prominently featured in financial expert and author Jack Schwager's book The New Market Wizards, in a chapter aptly titled "The Encyclopedia of Chart Formations."

This article is part of the "Investment Masters" series, focusing on investors who have succeeded in the markets and distilling their lessons to inspire us, the retail investors.

Who is Al Weiss?

Al Weiss is a commodities trader who employs chart analysis techniques, operating independently within his firm, AZF.

Weiss has always maintained a low profile, declining Schwager's interview requests for many years. He later explained that he wanted to wait until he had achieved ten years of consistently outstanding returns before declaring his method truly effective. He also feared that public exposure might attract the wrong kind of clients.

Eventually, Weiss gave the interview for Schwager's 1992 book, The New Market Wizards—by which time he was no longer accepting new investment funds. His chapter is one of the shortest in the book, and Schwager admitted it was one of the most challenging interviews. The chapter title remains the classic: "The Encyclopedia of Chart Formations."

His Early Journey

In his twenties, Weiss invented polyurethane skateboard wheels, which made him wealthy overnight. He then invested his profits in real estate, reaping significant rewards once again.

Before formally entering trading, Weiss spent a full four years studying thousands of chart patterns—some of the data even dated back to the 1840s.

Performance Record

At the time of Schwager's interview, Weiss's track record was astonishing. Over the previous decade, his average annual return was as high as 52%. In other words, a $1,000 investment in 1982 would have grown to $53,000 by the end of 1991.

During that ten-year period, he had only met five clients face-to-face. More impressively, while achieving high returns, his maximum drawdown was extremely low—his worst loss in 1986 was only 17%. In the four years leading up to the interview, his average annual return was 29%, with a maximum drawdown of less than 5%.

Investing in Other Traders

Weiss enjoyed investing his own funds with other talented traders. He reviewed the performance records of 800 traders and selected 20 to work with. By blending different trading styles, he aimed to achieve robust excess returns with minimal drawdowns. In the four years prior to the interview, this portfolio averaged a 19% annual return with an average maximum drawdown of less than 3%.

Trading Style

Weiss is a technical trader who analyzes chart patterns. He primarily trades commodities through futures markets. He avoids fundamental analysis, reasoning, "Markets operate more on psychology than on fundamentals."

He believes one key to long-term chart analysis is recognizing that markets exhibit different characteristics under different economic cycles. Identifying these long-term patterns requires extensive historical data. Determining the current phase of the economic cycle—whether it's inflationary or deflationary—is crucial for interpreting chart formations correctly.

Weiss attributes his edge over other technical traders to the fact that while most traders study charts from only the past 30 years, he researches data from much further back. Additionally, he believes he can overlay an "economic cycle filter" on his analysis, giving him an advantage in market interpretation.

He particularly emphasizes that he looks for combinations of patterns—what he calls "patterns within patterns within patterns"—rather than single formations (like a head and shoulders top). Weiss believes composite patterns are more reliable than single ones but notes: "Even if a pattern has only a 50% success rate, you can still be profitable if you have a good risk control plan."

Market Cycles

"Everything has a cycle—weather, waves, and markets. One of the most important long-term cycles is the transition from inflation to deflation."

Approximately every two generations (about 47 to 60 years), a deflationary market emerges, and such a deflationary phase typically lasts 8 to 12 years. Weiss pointed out that the last deflationary cycle in commodities began around 1980, and by the time of the interview (around 1992), it had been nearly 12 years. "I think we are approaching a major bottom in commodity prices."

In reality, the bear market in commodities persisted until the late 1990s, after which it entered the China-demand-driven "supercycle" bull market of the 2000s.

Conversation with The New Market Wizards

Q: How did you become a trader?
It didn't happen overnight. I spent a full four years in intensive research before I started any actual trading. I devoted countless hours to studying price charts, going back as far as data was available. After examining thousands of charts, I began to identify certain recurring patterns, which eventually formed the foundation of my trading methodology.

Q: How far back did your chart research actually go?
It depended on the specific market and what chart data was available. For grain markets, for example, I could trace prices back to the 1840s.

Q: Was it really necessary to go back that far?
Absolutely. One of the keys to long-term chart analysis is realizing that markets behave differently under different economic cycles. To identify these long-term patterns—whether they repeat or vary—you need a lot of historical data. Figuring out what phase of the economic cycle you're in—for instance, whether it's an inflationary or deflationary period—is crucial for correctly interpreting the chart formations that are developing.

Q: Why do you rely solely on technical analysis instead of combining it with fundamentals?
Many economists have tried to trade the commodities markets from a fundamental perspective, and they usually fail. The problem is: markets operate more on psychology than on fundamentals. For example, you might determine that the fair price for silver is $8—and that might be fundamentally sound. But in certain environments, like a severe inflationary period, prices can temporarily rise far above their fundamental value. At the peak of the 1980 commodity inflation surge, silver soared to $50 per ounce—a price completely detached from any rational fundamental assessment. Ultimately, of course, markets always return to their fundamental values. In fact, throughout market history, I can't think of a single commodity that didn't eventually revert to its underlying value. But in the process, traders who rely solely on fundamentals often get wiped out long before that reversion occurs.

Q: Do you always follow your trading system, or do you sometimes use discretion and ignore signals?
I strictly follow the system over 90% of the time, but I occasionally try to "go beyond the system." Because I'm very cautious and selective about these discretionary deviations, overall, they actually enhance my performance.

Memorable Quotes

"The essence of the market is a reflection of human psychology, and charting is merely the graphical representation of that psychology."

"The length of cycles varies dramatically across different markets. Grains, for example, which are heavily weather-dependent, might see five bull markets in twenty years. An asset like gold might have only three to five major bull cycles in a century."

Conclusion

For the average investor, this chapter, though brief, remains insightful: some individuals can indeed achieve consistent market profits using only charting techniques, without relying on fundamental analysis. Weiss's approach of analyzing "combinations of patterns" and overlaying the "economic cycle filter" is highly thought-provoking, even though he didn't provide specific examples, making these concepts difficult to apply directly to trading.

As Schwager noted: the immense research effort Weiss invested and his explanation of his own performance suggest one truth—to make money from charts, you must operate at Weiss's level. In other words, this path is not for the faint of heart.