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The Wisdom of Jesse Livermore

  
  Education
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Here are seven lessons from Jesse Livermore who is considered by many as one of the greatest traders who ever lived.

Lesson Number One: Cut your losses quickly.

As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. Risk management should dictate the size of the trade and how much you can lose. Deciding where to exit when a position is going against you is not a winning strategy.

Lesson Number Two: Confirm your judgment before trading a larger than average position.

Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed by it going in his favor. Once the stock was traveling in the direction he desired, Livermore would maximize his trading size for out sized wins.

There are many ways to add to a winning position — pyramiding up at key pivot points, building a position as the trade goes in your favor, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you. Never add to a losing position.

Lesson Number Three: Watch leading stocks for the best action.

Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game. Shorting monster stocks is a very dangerous undertaking when they are under accumulation by large funds. (more…)

Trading psychology

  
  Education
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  • Trading psychologyStop trying to outsmart the market. NO ONE knows exactly where it will go.
  • With each decision you make comes stress:
    • The more decisions you make, the more likely you are to be wrong.
    • The more decisions you are used to making, the more pressure you’ll put on yourself to make even more decisions.
    • No one can be that right.
  • Forget about the “whys’ of the market. After all is said and done, the reasons will be known.
  • Don’t apply logic. Markets move on emotions — period!
  • Plan your trade and trade your plan.
  • Reduce the amount of decisions you make.
  • Make decisions and live with them (also a life lesson!).
    • Good decisions come from experience.
    • Experience comes from bad decisions.

    • Jesse Livermore’s trading rules

      
      Education
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    Lesson Number One: Cut your losses quickly.

    As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

    Lesson Number Two: Confirm your judgment before going all in.

    Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.

    There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you.

    Lesson Number Three: Watch leading stocks for the best action.

    Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.

    Lesson Number Four: Let profits ride until price action dictates otherwise.

    “It never was my thinking that made the big money for me. It always was my sitting.”

    One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. (more…)

    Hesitation

      
      Education
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    You are watching a stock that has all the signals you look for in an opportunity. The proper point to enter comes, but you wait. You second guess the opportunity and don’t buy the stock. Or, you bid for the stock at a price that is not likely to get filled if the opportunity does pan out the way you anticipate it will. As a result, you get left behind while the market pushes the stock higher. A short while after the initial entry signal, when the stock has made a decent gain, you decide to finally enter the trade. After all, the market has proven your analysis correct, so you must be smart, and right! Not long after you enter, the stock turns south and you end up with a losing trade. If only you had bought when you first thought about it.

    The Solution

    This is really just a confidence issue. You are either not confident in your ability to analyze stocks, or you are not confident in the methodology that you are using to pick trades. Therefore, you have to research your method so that you have the confidence that it works. Then, you have to start small, making trades that have a potential loss that you are comfortable with. As you gain confidence in your method and your ability, increase the trade size. With your new found confidence, stand in a crowded room and scream, “I am great!” Well, maybe don’t carry it that far.

    Jesse Livermore’s trading rules

      
      Education
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    Lesson Number One: Cut your losses quickly.

    As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

    Lesson Number Two: Confirm your judgment before going all in.

    Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.

    There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you.

    Lesson Number Three: Watch leading stocks for the best action.

    Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game. (more…)

    Trading Wisdom Via Linda Raschke

      
      Education
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    It’s important as a trader to always be studying and sharpening your skills. Here is a short video jammed packed with concepts from Linda Raschke that all traders can use in their trading plan.
    Key concepts from the video:

    • The fewer decisions that you can make during the trading day, the better off you will be.
    • All exit strategies should be based of your initial entry.
    • 75% of trades test out best by taking your profits quickly.
    • Shorter the time frame, the less justification for trailing stops.
    • Trend followers often pay up to ensure they get a position.

     

    Livermores Seven Trading Lessons

      
      Education
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    Lesson Number One: Cut your losses quickly.

    As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

    Lesson Number Two: Confirm your judgment before going all in.

    Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.

    There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you.

    Lesson Number Three: Watch leading stocks for the best action.

    Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.

    Lesson Number Four: Let profits ride until price action dictates otherwise. (more…)

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