Archives of “JESSE LIVERMORE” tag

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Words of Wisdom from :Kroll's book

  
  Education
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The Professional Commodity Trader (reprinted in 1995 by Traders Press) to follow him as he traded between July 1971 and January 1974, during which time for the 39 accounts that he managed he turned $664,379 into $2,985,138. He funded his own account in July 1971 with $18,000; eighteen months later it had appreciated to $130,000. Apparently before he “retired,” he was sitting on a $1 million account. What was the secret of his success?

Kroll was a discretionary trend trader in the tradition of Jesse Livermore. He had simple entry and exit rules. To initiate a position he would trade in the direction of the major trend, against the minor trend. “For example, if the major trend is clearly up, trade the market from the long side, or not at all, buying when: a. the minor trend has turned down, and b. prices are ‘digging’ into support, and c. the market has made a 35-50 percent retracement of the previous up leg.” To close out a long position at a profit, liquidate one-third at a logical price objective into overhead resistance, another third at a long-term price objective into major resistance, and trail stop the remaining third. There are three approaches to closing out a position at a loss. First, enter an arbitrary “money” stop-loss such as 40-50% of the requisite margin; second, enter a chart stop-loss “to close out the position when the major trend reverses against your position—not when the minor trend reverses (that’s just the point where you should be initiating the position, not closing it out).” Finally, “maintain the position until you are convinced that you are wrong (the major trend has reversed against you) and then close out on the first technical correction.” (pp. 27-28) He admits that the last alternative can be potentially lethal; the technical correction may not come in a timely fashion.

Kroll offers some advice to the would-be futures trader. He urges the wannabe to play only for the major moves—not for scalps. As he writes, “Riding a winning commodity position is a lot like riding a bucking bronco. Once you manage to get aboard, you know what you have to do—hang on and stay hung on; not get bumped or knocked off till the end of the ride. And you know that if you can just manage to stay in the saddle, you’re a winner. Sounds simple? Well, that’s the essence of successful trading.” (p. 44)

Put another way, when ahead, “play for the big score and don’t settle for a minor profit.” On the other hand, when a trade isn’t working out, “spend your constructive effort in calculating how to close out the losing position with a minimum loss or perhaps a modest profit—and if such an opportunity is offered, take it.” Contrary to a lot of the literature, he also advocates striving for a high winning percentage. The problem with accepting a small fraction of winning trades is that “the winningest accounts . . . still manage to chalk up some mighty big losses—it seems just about impossible to always keep losses small, no matter how hard you try.” (p. 153)

I’ve extracted some words of wisdom from Kroll’s book, but what makes the book so enjoyable is that Kroll takes the reader through actual trades, some winners and others losers, and shows the courage it took to ride the bronco and the acute pain he felt when he was bucked off. It’s a book that you read in one sitting, fully engrossed.

Planning, Discipline & Patience.

  
  Education
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  • Predicting rain does n’t count; building arks does’: Warren Buffett’s Noah Rule.
  • “To know and not to do, is not yet to know” – Courtesy of Tom Witters.
  • ‘It’s easy to have faith in yourself and have discipline when you’re a winner, when you’re number one. What you got to have is faith and discipline when you’re not a winner.’ – Vince Lombardi
  • ‘After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!’ – Jesse Livermore

reminiscences

  
  Education
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RSOonlinestocktrading

Here is a link to a pdf version of Livermore’s story.  I couldn’t get the link to work, so you’ll have to copy and paste it in your browser.

http://www.trading-naked.com/library/jesse_livermore.pdf

Anyone interested in trading, here is the bible. Read it, re-read it, and live it, then go back and re-read it again.  While very outdated, this was one of the most influential books I ever read.  This book made me want to be a speculator.  Livermore made many mistakes in his life and died peniless, but what a run while he had it.

(Already I had read this book more then 10 times till today in last 14 years )

Trading Wisdom Not Heard Often

  
  Education
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wisdom-
  • Buy from the scared, sell to the greedy.
  • Buy their pain, not their gain.
  • Successful traders are quick to change their minds and have little pride of opinion.
  • I made my money because I always got out too soon. (Bernard Baruch)
  • Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch)
  • Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting. (Jesse Livermore)
  • The faster a stock has climbed, the quicker it will fall.
  • The more certain the crowd is, the surer it is to be wrong. (Menschel)
  • Bear markets begin in good times. Bull markets begin in bad times
  • Never confuse genius with a bull market.
  • Always sell what shows you a loss and keep what shows you a profit

Market Manipulation

  
  Education
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Jesse Livermore learned the art of stock market manipulation, manipulating the prices of thinly traded stocks, in bucket shops.

On March 13, 1925, Arthur Cutten – one of his biggest rivals – accused Livermore of continuing his shady dealings – not in bucket shops – but, very seriously, on the Chicago Futures Exchange.

At the beginning of his career, Jesse Livermore had traded exclusively in bucket shops. He had prospered and built up his funds. Bucket shops weren’t set up to lose money, however, and soon they were refusing to deal with Livermore or worse, were cheating him. (more…)

Veneziani, The Greatest Trades of All Time

  
  Education
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Vincent W. Veneziani’s The Greatest Trades of All Time: Top Traders Making Big Profits from the Crash of 1929 to Today (Wiley, 2011) is not the greatest trading book of all time. The problem is that most of its material is readily available in greater detail elsewhere. For instance, if you want to read about John Paulson’s subprime short, the obvious source is The Greatest Trade Ever by Gregory Zuckerman. Or why read ten pages about Jesse Livermore when we have Reminiscences of a Stock Operator? The only original material comes from the author’s interviews with Kyle Bass and Jim Chanos.

For those who are new to trading, however, this book provides an introduction to some icons of the business and their winning trades. Featured, in addition to Livermore, Paulson, Bass, and Chanos, are Paul Tudor Jones, John Templeton, George Soros, David Einhorn, Martin Schwartz, and John Arnold. The final chapter deals briefly with Phillip Falcone, David Tepper, Andrew Hall, and Greg Lippmann.

Each chapter has a life of its own, but all conclude with very brief sections that recreate the person’s trading strategies and his top traits. For instance, we read that “Jones’s brazen utilization of Elliot [sic] wave theory is legendary.” (p. 43) Jones was not a wave counter; rather, he embraced Elliott’s notion of repeating cycles. The author shows a chart overlaying data from 1982-1986 on 1932-1936 data and notes the striking correlation. Jones “extrapolated a time period with a high correlation and began making investments as if he were living in the past with a roadmap to the future” (p. 38), a technique that was chronicled in the 1987 PBS documentary about him. (Despite the best efforts of Jones and his lawyers, the film is still available online.) Veneziani also notes that “Jones helped define the cliché Wall Street traits that much of the industry and its participants attempt to emulate today.” (p. 44) Among them: intensity, keeping a comprehensive viewpoint, and having a methodical approach. (more…)

9 Lessons from Jesse Livermore

  
  Education
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J-LMUST READThere are those who would convince you that it is somehow smart or in your best interest to be manically switching your investments around, back and forth, long and short, on a daily basis. To pay attention to this kind of overstimulation is the height of madness, even for professional traders.

The most storied and important trader who ever lived, Jesse Livermore, would be tuning these daily buy and sell calls out were he alive and operating today. Because while he was a trader, he was not of the mindset that there was always some kind of action to be taking.

Jesse Livermore’s legacy is a bit of a double-edged sword…

On the one hand, he was the first to codify the ancient language of supply and demand that is every bit as relevant 100 years later as it was when he first relayed it to biographer Edwin Lefèvre. Livermore himself sums it up thusly: “I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.”

On the other hand, Livermore’s undoing came at precisely the moments in which he ignored his own advice. After repeated admonitions about tipsters, for example, Jesse allowed a tip on cotton to lead to a massive loss which grew even larger as he sat on it – violating yet another of his own cardinal rules.

And of course, other than for a few moments of temporary triumph in the trading pits and bucket shops of the era, Jesse Livermore was not a happy man. “Things haven’t gone well with me,” he informed one of his many wives by handwritten note, before putting a bullet through his own head in the cloakroom of the Sherry-Netherland Hotel.

But he did leave behind a wealth of knowledge about the art of speculation. His exploits (and cautionary tales of woe) have educated, influenced and inspired every generation of trader since Reminiscences was first published in 1923. (more…)

On Trading Psychology

  
  Education
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From “Reminiscences of a Stock Operator” by Edwin Lefevre, the 1923 classic pseudo-autobiography of legendary trader Jesse Livermore:

… I didn’t always win. My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times. In fact, I always made money when I was sure I was right before I began. What beat me was not having brains enough to stick to my own game — that is, to play the market only when I was satisfied that precedents favored my play. There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily — or sufficient knowledge to make his play an intelligent play.

Sometimes the best play is to not play at all. When playing the market, you have to let the opportunities come to you, and take advantage of them when the odds are in your favor. If you don’t, you’ll get very frustrated — and you’ll lose money.

Five Timeless Rules of Investing Learned From Jesse Livermore

  
  Education
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.  “My greatest discovery was that a man must study general conditions, to size them up so as to be able to anticipate probabilities.”  What did Livermore mean by “general conditions”?  He meant the macroeconomic environment and geopolitics.  Are they favorable or not favorable to buying stocks?  Today, the Fed is raising rates and squeezing the money supply (the monetary base declined last month for the first time in years; a year ago, it was going up 10%.)  The war in the Middle East is heating up.  These general conditions are not conducive to a bull market, except for gold!

2.  Learn from wise old men who have experience in the markets.  In Reminiscences of a Stock Operator , the author talks about “the Old Turkey,” a “very wise old codger” who counseled Jesse Livermore on making good investment decisions and avoiding mistakes.  How can you do this?  The best way is to read histories of the great investors such as Warren Buffett, Peter Lynch, John Templeton and J. Paul Getty.

3.  Learn your strengths and weaknesses.  “We’ve all got a weak spot.  What’s yours?” asks the Old Turkey.  A good question that we must all answer.  “Study mistakes,” he counsels.  You don’t learn from your successes, only from your mistakes!

4.  Always save some of your gains.  “I was again living pretty well, but always saving something, to increase the stake that I was to take back to Wall Street.”  Unfortunately, Livermore made the mistake of not living up to his own advice.  He leveraged himself too much, and often went bankrupt.  By taking some of your gains and investing the funds in alternative investments, such as real estate, art and collectibles, or gold coins, you protect yourself in case you are wrong.

This reminds me of something that happened to me many years ago.  I had made a $2 million profit on a penny stock and my wife sat me down and insisted I pay off the mortgage, which was sizeable.  I told her I preferred to reinvest the profits in more penny stocks, but she insisted, and I finally agreed with her and paid off the mortgage.  It was the best decision “I” ever made!  Had I invested the profits in more penny stocks, I would have lost my shirt, because the penny stocks went into a major bear market soon after.

5.  Beware the charismatic financial guru!  “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.”  Oh, how true.  I well remember the times I invested in several tax shelters that eventually went bust, because I was thoroughly convinced by a smooth talking salesman who seemed brilliant at the time.

The Greatest Trader Who Ever Lived: Jesse Livermore?

  
  Education
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Seventy one years ago, on Thursday, November 28, 1940, Jesse Lauriston Livermore, entered the Sherry Netherland Hotel where he took a seat near the bar and enjoyed a couple of old-fashioned. After an hour Jesse Livermore got up and went in the cloakroom, seated himself on a stool, and then shot himself in the head with a .32 Colt automatic. How could the man who is still regarded by many as the greatest trader who ever lived go out this way by taking his own life? It just doesn’t match the rest of his life.

In his youth Jesse was know as the “Boy Plunger” because he looked younger than his years and he would take big positions when he traded against the bucket shops of his day. The bucket shops let traders bet on a stock price, but no trade was executed, the house covered if you were right. How good was he? He was banned from the bucket shops one by one, it was like getting kicked out of a casino because you beat the house so badly with outsized gains. He went on to trade in stocks and commodities and did very well becoming a millionaire many times. Unfortunately he also went bust many times. He made his biggest money in the market crashes of 1907 and 1929,  it is said that J.P. Morgan himself sent word asking for Jesse to please quit shorting stocks. In 1929 the day of one of the biggest market meltdowns he returned home and his wife was scared that he had lost everything, he surprised her by making the biggest money of his trading career. He ended up with the nickname “The Great Bear of Wall Street” because of his shorting activity.

Here are some of his most insightful quotes from his book  “How to Trade in Stocks”

“All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope – that is why the numerical formations and patterns recur on a constant basis”

“Successful traders always follow the line of least resistance – follow the trend – the trend is your friend”

“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because hu (more…)

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