One approach is to put in 25 or 50 feet of pipe between the compressor and the air tool. The air will cool in the pipe, and a lot of the moisture will drop out. You just need to slope the lines and put in drains in the low points.
This is really a laws of physics issue. If the air coming in is 50% humidity, and you compress 15 psi air to 150 psi, if the temperature stays constant, the relative humidity would become 500%. (Obviously going over 100% is not really possible, I am trying to explain the physics). But it is not that simple. The air heats up, and warm air will carry more moisture; as the air cools, the humidity gets over 100%, and the excess moisture will drop out. A lot of the moisture drops out in the tank, which is why compressor tanks have drain valves.
I am fortunate enough to live in a dry climate, so my moisture problems are not severe, but I still put in the 50 feet of pipe.
I would probably put the water separator as close to the tool as practical.