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In May my brother John and I visited Larry Pesavento in Tucson, Az. We were able to talk with Larry about his research in the areas of astro-cycles and about his books. Perhaps we learned the most just by watching a master trader make several successful trades during our two-day visit. Larry Pesavento is the author of 7 books, a frequent contributor to the Market Mavens web site ( www.marketmavens.com ), and has privately trained more than 300 students. Larry has been a broker for Drexal-Burnham-Lambert, is a former member of the C.M.E., and is currently a private trader for a large hedge fund. Larry said the ‘Holy Grail’ does not exist, but the closest thing to it can be found in astronomical phenomena. The key planets to pay attention to are Mercury, Venus, Mars, and Jupiter. He pays attention to aspectations of the planets and eclipses using an ephemeris. The fascinating part of our visit was watching Larry day trade Nasdaq stocks, euro-currency, bonds, soybeans, and the S&P. His approach was very effective and really quite simple. He used 2 tools exclusively. Larry said he has no interest in any of the standard studies such as moving averages, oscillators, Stochastic, or relative strength and does not use any studies. I believe the reason for not using studies is that they lag behind the market action. The tool he uses for picking price objectives is the Fibonacci Levels tool. His afternoon homework to prepare for the next trading day is to mark hourly and daily bar charts with Fibonacci price levels, looking for key prices, and favorite patterns such as Gartley and butterfly patterns. Multiple Fibonacci tools might be applied to a chart, and the keys prices are those where there is congestion of multiple levels at the same price. The Fibonacci Levels used are 0.618, 0.786, 1.00, 1.272, and 1.618. These 5 numbers are the 5 sacred numbers used by Larry. The really fascinating 2nd tool used by Larry is a proprietary analysis tool that tells him WHEN to place a trade. This tools focuses on TIME. Larry said that Time is the most important aspect of a chart. Too many traders focus on Price, instead of Time, and that is why they are not as successful as they might be. Larry had great confidence in his Time forecasts. It clearly told him when to go long and when to go short. Thus, he was not glued to the computer screen. In fact, he was very relaxed when he traded and not obsessed with watching the computer charts. We observed that Larry would know that the trade would be on until the Time for the next turn, and until that time arrived, he basically had nothing to do but wait. And indeed he would wait. Thus, Larry is armed with 2 effective tools: one for Price and one for Time. When the market is trading at the juncture of these two tools, he would place a trade, which is a counter trade with the expectation that the market will reverse direction. Larry trades at a price that is one of the Fibonacci Levels of a prior major move. He always placed a reasonable stop at the time he made the trade. Then he would basically count on the probabilities to be in his favor, that the market would reverse direction and his trade would work out. If the trade did not work out, his loss would be small and manageable because of the stop loss. The trading he did the first day of our visit had 5 winners and 2 losers, for a gain for the day of over ten thousand dollars. Larry said a typical good day for his day trading would be up $20,000, and a really bad day would be to lose $50,000. Of course his expectation is to have good days 3 times a week. This is the method I observed that Larry used for his day trading. He would watch for correlation in his Time forecast with market turns. Call it harmony. If the chart was showing good correlation, meaning actual turns are happening within 15 minutes of the forecast time for the turn and had the right direction going into the turn, then Larry would have confidence in the Time forecast and trade the chart. If the correlation was ‘off’, the chart would be ignored. So, the market has to be in sync or harmony with his Time forecasts on his 2-minute bar charts. Then, when the market was at the TIME for a trend change, Larry would use the Fibonacci Levels tool with the 5 sacred numbers to see which level should be used for the price for his trade. We observed for one S&P trade he made, the market was descending, but slightly above the 1.27 level. It was time for the market to change, so he called his broker (he abhors electronic trading), placed an order to buy S&P at the 1.27 level price, and placed a stop a few points lower. A few minutes later the S&P traded beyond his entry price by a few ticks, reversed, and then traded upward right on schedule exactly as expected. I was very impressed to watch the master at work to correctly call both the time of the turn, and the price for the turn. Then he basically turned his back to his computers and visited with us, quite relaxed about his trade. The Time for the next turn was 35 minutes away, and thus this trade did not need further concern until 35 minutes had passed. Possibly he would raise his stop to break even. He demonstrated the greatest of confidence in his trade, and in his tools for picking the Time and the Price of the trade.
Larry uses the Ensign 6 program in 2002, an older DOS based program written by Ensign Software and very popular 10 years ago. He also has the QCharts program, but that seemed to be secondary or used as a back up data feed. (Note: Larry has since switched to the Ensign Windows program.) His Ensign screens showed one or two charts. On the screen he would overlay a list of symbols showing the current price and net. He did not use any studies and did not look for divergence. While day trading he only looked at 2-minute bar charts. His charts had his proprietary Time tool, and the Fibonacci Levels tool (typically just 1) that would be drawn when a price needed to be selected for the trade about to be made. If the market was at the 0.618 level, that is the price that would be used. He did not have any preconceived notion as to how much profit a trade needed to have when it was removed. He traded based on knowing the Time for the next turn, and took what ever Fibonacci Level price the market was nearest WHEN it was the time for a trend change. Sorry I keep harping on the issue of Time, but it definitely was the KEY to the method Larry uses for day-trading. Now, a Fibonacci Levels tool is readily available in most charting software packages. However, the timing tool Larry uses is proprietary and not available in any commercial software package. Believe me......it is proprietary and his closely guarded secret. Rather than leave everyone groping for a timing tool, permit me to suggest consideration of the following timing tools as possible substitutes. 1) Use the Fibonacci Ruler where the measurement is from trend low to trend low, and the extension percentages beyond the right side low are the sacred numbers of 0.618, 0.786, 1.00, 1.272, and 1.618. This idea is discussed in the January 2000 Trading Tips newsletter. 2) Use the End-of-Square in the Pyrapoint tool in Ensign Windows. This is a powerful tool that suggests price levels and measures time. Many of the market turns occur at End-of-Square. The biggest disadvantage of using Pyrapoint is you will have excess End-of-Square boundaries. More can be read about Pyrapoint in the January 2001 Trading Tips newsletter. 3) Use Gann Fans placed on significant trend lows and highs and watch the intersection of fan lines with each other and with the horizontals from the trend lows and trend highs. This timing technique was discussed in the July 2000 Trading Tips newsletter. 4) Use cycles to find repetitive patterns. Read more about cycles in these articles:
This chart illustrates the process of using the Fibonacci Levels tool in conjunction with a timing tool (cycles in the example). The cycles tool shows a pattern of an opening low and a mid-day low. The conjunction of the timing tool with the Fibonacci levels tools would give a Buy at the 127% price of 9.45 at 12 o'clock on May 30th. This is not one of Larry's trades because Larry does not follow any stock under $20 and does not use the cycles tool for his timing. The example was hand picked with the benefit of hindsight to illustrate the principles being taught. Now, is Larry's timing based on any of the above? The answer is no, it is not. His timing tool is mathematical and examines past data for repetitive behavior. Sorry the suggestions listed above will not be as effective as Larry's timing tool. I wish I had his tool. I would use it if I had it because I think his tool gives him a competitive advantage and puts the probability of a winning trade in his favor. It truly was a pleasure to watch a master trader at work: comfortable, confident, and very successful. Larry has a web site, managed by one of his students. The web site address is www.tradingtutor.com. To learn more about Larry Pesavento, please visit his web site and check out the services that are available there. Sacred Numbers
Article by Howard Arrington Last modified 10/20/08 2:12 PM |
