Larry Pesavento – A Radio Interview with Larry Pesavento
by Larry Pesavento
1. Our guest today is Larry Pesavento. Larry Pesavento, how did you first become interested in trading?
Larry Pesavento: I began in 1959 when I was a freshman in college, my uncle had given me a stock tip called elastic stop nut. I told a few of my fraternity brothers who in turn told their fathers, it turned out to be a good tip so I supplied them with the stocks my uncle was buying not knowing it was a huge bull market in everything and I craved the attention.
2. When first starting in this business what do you feel was your worst trading error?
Larry Pesavento: This is by far the toughest question because I’ve made so many errors. It has been said that the smart man learns from his mistakes, but the wise man learns from the mistake of others, I was not a wise man because I had made many mistakes many times, usually the same ones. But by far the worst thing you can do in trading is to add to a losing position. It is followed closely by trading without a trading plan or money management.
3. At what point did you realize that trading was a career and a business that was for you and why?
Larry Pesavento: It was the 1967 silver market and I did very well in that but the real key was that trading was the last thing I thought about before going to sleep. I dreamt it all night and it was the first thing I thought about in the morning.
4. Larry Pesavento, psychologically how do you treat losses and account draw downs?
Larry Pesavento: Losses in trading or like breathing, you can’t live in this business without breathing. Mark Douglas taught me to think in probabilities and to not rely on any particular trade. If your methodology is correct, a string of losers will be followed by winning streaks.
5. Looking back who are the people that Larry Pesavento respected and modeled in the trading profession?
Larry Pesavento: John Hill, Amos Hostetter, Bryce Gilmore and Mark Douglas.
6. Larry Pesavento, as one of the foremost Fibonacci experts in the trading world, would you consider this your number one technical tool for market entry and exit?
Larry Pesavento: The use of Fibonacci numbers is probably one of the most misunderstood concepts in technical analysis. It is a part of an area of study called Sacred Geometry. Within this structure are the non-random patterns in the stock market that repeat daily and can be quantified and traded profitably. Without this all would have no way of measuring risk and therefore no trading plan.
7. With the hundreds of technical indicators out there what would Larry Pesavento suggest new technicians do to prevent “analysis paralysis”?
Larry Pesavento: Find a strategy that they like and understand and implement it with good money management strategy. This question has implications that most traders are always searching for the Holy Grail; the Holy Grail is that 9 inch cycle that extends from your left ear over the top of your head to your right ear. Once the trader recognizes that he has no control over which trades are profitable or how much he can make on any one trade with any certainty he will come to realize that the only thing that the trader can control is the risk on any one trade.
8. When did you, Larry Pesavento, actually trade the markets?
Larry Pesavento: In my past lives I traded Egyptian palm oil with the Pharaohs in Egypt while studying the Fibonacci numbers of the pyramid at Giza. I surfaced again in 1965 when I started trading cattle and silver actively along with some stocks. I only traded from the long side. I did not know how to put on a short sale.
9. Do you remember your first major trade and the thinking behind it?
Larry Pesavento: This should be a two-part question, was it the first major trade before I knew something, or when I knew nothing? The first major trade when I knew nothing was a Wheat spread and I took off the short side of the spread and remained long. It just happened to be the day before the Great Russian grain robbery was announced. That was Larry Pesavento’s first major trade when I knew nothing. After Larry Pesavento lost everything and began to study the markets the trade they got him back to where he was happened to be the big soybean market of 1976-1977.
10. What is Larry Pesavento’s most memorable trade?
Larry Pesavento: There have been so many that I think about often but one that is similar to the current news was the January 1991 trade that contained three parts. I am a pattern recognition trader, I try to take every identifiable pattern within my equity limits. In January of 1991, 2 days before the Desert Storm war on Iraq, I had a major sell signal in gold and crude oil and a huge bullish Gartley pattern in the S&P 500. It was the day of the solar eclipse and new moon of January when the bombs hit Baghdad at midnight Baghdad time. The markets were closed in the U.S. and there was no overnight S&P trading. Several friends called me to tell me what was happening and I watched what was happening with a bomb by bomb description of what was happening in Baghdad. Early unconfirmed reports by the financial press alluded to soaring gold and crude oil prices accompanied by plunging stock prices. In the next few hours however, it was apparent that this was going to be one of the shortest wars in history and the Allies had brought Iraq to their knees. The next day opened down the $25 oz permissible limit, crude oil fell over $10 a barrel ($10,000 per contract) making it the largest percentage drop in crude oil in history. On the next day following the war, the stock market experienced one of his largest percentage gains in its 200 year history.
11. What advice would Larry Pesavento give someone in regards to being successful in the markets?
Larry Pesavento: First, remember trading is a journey not a destination and read everything available that concerns the psychology of the marketplace and you. Find a mentor that has successfully beaten the markets and emulate his or her strategy, but be sure that it conforms to your belief structure and risk perimeters.
12. What mistakes do most people make in the markets?
Larry Pesavento: No money management and no trading plan and not trading the plan if they have one. Losers think how much can I win – winners think how much can I lose. The reason this is so important is because risk is the only thing a trader can control. Losers habitually focus on how much profit they’re going to make; winners correctly focused on executing the trading plan and thinking in probabilities.
13. How did Larry Pesavento end up becoming a trader?
Larry Pesavento: One of my favorite hobbies is to read Chinese literature and a particular quote by Confucius has always stuck with me – The man who loves his job is always on vacation. It’s the greatest profession in the world because you have total freedom; you are your own boss. It’s different every day and you meet some of the nicest people in the world and your success can be limitless.
14. What do you think are the greatest misconceptions people have about the markets?
Larry Pesavento: First, markets are chaotic in nature, but within this chaos are non-random patterns that repeat and are predictable. Second, trading is simple but it’s not easy. The process of making it easy can take years, but the main thing to remember is to never give up. Third, the news follows the trends. Enron was going down a whole year before it filed bankruptcy as well as Kmart and Lucent and others. But by far the greatest misconception about the market is the lack of respect given to the science of the planetary cycles of the market. Those of us (and we are very few) have done considerable research and very little of it is recognized. At this stage of my life it really means less to me than it did earlier because I was able to profit from it. I’ve proven to myself beyond any reasonable doubt that there is a strong correlation between these cycles and movements in the stock market and commodity markets as well. A case in point is the Bradley stock market cycle that does an amazing job of forecasting turning points in the market year after year. That’s Larry Pesavento on market misconceptions.