US trading legend Larry Pesavento.
With more than 50 years' trading under his belt, weathering booms and busts, writing 10 books and still going strong, US trading legend Larry Pesavento has learned a few things about the markets.
Indeed, this veteran who's coming to New Zealand in November with CMC Markets is predicting that the bearish trend we've seen in stocks since July is a likely longer-term pattern and we may be going lower on a worldwide basis.
Ahead of his visit to New Zealand, Larry shares some hard-earned insights with Nick McDonald.
Tell us a bit about your trading today?
It consists primarily of foreign-exchange and highly liquid commodity markets. I work with a partner in a hedge fund that is privately held as well as doing my personal trading.
Typically, I put in a 10-12 hour work day which is actually more like play because I enjoy trading very much; an enjoyment that has spanned over 50 years.
How did you get started?
It started in college when I was studying to become a pharmacist and my professor, who was a PhD in mathematics, loved trading more than teaching. Once, he showed me charts of corn, soybeans, and wheat along with a variety of stocks such as Chrysler and Ford and explained how he used them to try to predict what the market was going to do. I also took his statistics course where he related the tenants of statistics to the stock market.
Then in 1964 he was bullish silver which had just begun trading at the Comex exchange in New York. I began buying silver for everyone in the family when it was around $1.27 an ounce. President Lyndon Johnson had decreed to redeem all silver certificates for silver bullion by 1968 which meant that if you bought a silver certificate for $1, which was face value, it was worth a minimum of $1.27c. Eventually silver went to over $4 an ounce and I was able to triple the investment that I had made for family members.
The minimum wage in the US at that time was $1.10 per hour. A registered pharmacist made around $10 per hour. I had just made $46,000 in cash in a 13 month period. That experience got me hooked!
It is said that every trader from the pits in Chicago has "battle stories" to share. Can you share one with us?
One particular instance in the pit I was being pressured by one local to buy 20 contracts of gold which was twice my normal limit.
Finally, I did take the order and was angry with myself so walked out of the pit and over to the desk to gather my thoughts. By the time I reached the desk two minutes later, news hit that the North Korean Air Force had shot down a commercial airliner.
Gold had just rallied $10 an ounce. I immediately liquidated the position and called it a day.
In New Zealand, trading and investing are very much in the infancy stages. What advice do you have for Kiwis who see this profession as too risky to take the plunge?
The advent of the internet has brought financial markets to all parts of the world. Anyone with access to computer and a decent internet connection has the advantages that a floor trader used to have.
The most important thing to learn is that trading is a business just like any other and you must learn the rules in order to be successful. People think just because they open the account they become a trader or investor. Far from it!
It takes roughly two to four years to learn to be a professional trader in my opinion, about the equivalent of a college education. My advice to neophyte traders is to start extremely small and learn to do something that you believe works.
Please tell us a bit about your trading strategy and your approach to the markets?
Patterns repeat over and over again and they are predictable within limits. Experiences have taught me that there are certain patterns that repeat with greater regularity and predictability than other patterns.
It boils down to six major sell patterns and six major buy patterns! This will be the subject of my presentations in Australia and New Zealand.
If you had one piece of advice for aspiring traders, what would it be?
Learn, learn, learn, and learn some more before you start trading. There are wonderful books out there that can help you become a better trader. There is no difference in getting a college education than in learning trading.
The process takes time, one year at a minimum and most probably a lot more. But the freedom is certainly worth it. If I had any advice to put in one sentence it would be. Keep your losses small!
Any predictions for New Zealand markets for 2015 and beyond?
Recently the world stock markets have been hit hard, culminating in a very important low in mid-October.
This was also true of Australia and New Zealand. These October lows must hold for the market to be considered strong. Stock markets have been bearish since July and in the longer-term the pattern suggests that we are going lower on a worldwide basis. This is certainly different than what you're hearing in the financial press that everything is rosy.
The New Zealand dollar and Australian dollar have both been in wild trading ranges and we don't see any change coming soon.
Authors Note: Nick McDonald will be speaking alongside Larry Pesavento at the Auckland event, however has no financial benefit from the event, nor has he received any financial compensation for conducting this interview.
Plus: Auckland Airport and Spark are back in favour with analysts at Morningstar.