101% Must Read this article +Buy this Book too …A Bible for Every Trader !
The book starts with Livermore’s early trading career that was essentially scalping the markets for short trem profits using the tape and how he got to understand price movements before a bullish or bearish run. Livermore made $millions 3 times and lost it each time. He sadly ended up committing suicide in 1940 in the Sherry Netherland Hotel. He had amassed a $100m fortune by this time and no-one knew what happended to it. Maybe a trading disaster of some kind….who knows.
Some quotes and passasges I loved from the book
Grades of Suckers : The beginner knows nothing and everybody, including himself, knows it. But the next, or second, grade thinks he knows a great deal and makes others feel that way too. He is the experienced sucker, who has studied not the market itself but a few remarks about the market made by a still higher grade of suckers. The second-grade sucker knows how to keep from losing his money in some of the ways that get the raw beginner. It is this semisucker rather than the 100 per cent article who is the real all-the-year-round support of the commission houses. He lasts about three and a half years on an average, as compared with a single season of from three to thirty weeks, which is the usual Wall Street life of a first offender. It is naturally the semisucker who is always quoting the famous trading aphorisms and the various rules of the game. He knows all the don’ts that ever fell from the oracular lips of the old stagers excepting the principal one, which is: Don’t be a sucker!
This semisucker is the type that thinks he has cut his wisdom teeth because he loves to buy on declines. He waits for them. He measures his bargains by the number of points it has sold off from the top. In big bull markets the plain unadulterated sucker, utterly ignorant of rules and precedents, buys blindly because he hopes blindly. He makes most of the money until one of the healthy reactions takes it away from him at one fell swoop.
Sitting Tight : It was never my thinking that made me my big money; but my sitting. Sitting tight! Men who can both be right and sit tight are uncommon
Being Wrong : I was wrong; and the only thing to do when a man is wrong is to be right by ceasing to be wrong. get out of the trade.
Being Right : What is the use of being right unless you get the most use out of it ?! (maximising trades)
News : I work in harmony with the markets and take the path of least resistance every time. The trend is always established before the news is published. In Bull markets bear items are ignored and Bull items are exaggerated.
Narrow Markets (Consolidations) : When the prices are going nowhere, do nothing. Establish the limits of the nowhere prices and make up your mind not to do anything until the price breaks thru in either direction.
Scaling In : A true speculator tries the market small, if he’s wrong he loses nothing. Pile in when the prices go your way
Pro / Amateur : A man can’t spend years at one thing and not acquire a habitual attitude towards it quite unlike that of the average beginner. The difference distinguishes the professional from the amateur. It is the way a man looks at things that makes or loses money for him in the speculative markets.
Average Cost : Of all speculative blunders there are few greater than trying to average a losing game.
Tips : To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.
Gambling in Trading : There isn’t a man in Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motor boat or a painting. I could build a huge hospital with the birthday presents that the tight-fisted stock market has refused to pay for. In fact, of all hoodoos in Wall Street I think the resolve to induce the stock market to act as a fairy godmother is the busiest and most persistent. Like all well-authenticated hoodoos this has its reason for being. What does a man do when he sets out to make the stock market pay for a sudden need? Why, he merely hopes. He gambles.
Selling at the Top : Another thing to bear in mind is this: Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally. I cleared about three million dollars in 1916 by being bullish as long as the bull market lasted and then by being bearish when the bear market started. As I said before, a man does not have to marry one side of the market till death do them part.
Tips : TIPS! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip-seeker is not really after good tips, but after any tip. If it makes good, fine! If it doesn’t, better luck with the next. I am thinking of the average customer of the average commission house. ……… It has always seemed to me the height of dam foolishness to trade on tips. I suppose I am not built the way a tip-taker is. I sometimes think that tip-takers are like drunkards. There are some who can’t resist the craving and always look forward to those jags which they consider indispensable to their happiness. It is so easy to open your ears and let the tip in. To be told precisely what to do to be happy in such a manner that you can eagerly obey is the next nicest thing to being happy which is a mighty long first step toward the fulfilment of your heart’s desire. It is not so much greed made blind by eagerness as it is hope bandaged by the unwillingness to do any thinking.
Education : You can transmit knowledge — that is, your particular collection of card indexed facts, but not your experience. A man may know what to do and lose money — if he doesn’t do it quickly enough. Observation, experience, memory and mathematics — these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed.
Fearless : It was not difficult to be both fearless and patient. A speculator must have faith in himself and in his judgment. The late Dickson G. Watts, ex-President of the New York Cotton Exchange and famous author of “Speculation as a Fine Art,” says that courage in a speculator is merely confidence to act on the decision of his mind. With me, I cannot fear to be wrong because I never think I am wrong until I am proven wrong. In fact, I am uncomfortable unless I am capitalising my experience
Fear and Hope : Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was. Weapons change, but strategy remains strategy, on the New York Stock Exchange as on the battlefield.