Archives of “line of least resistance” tag

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Day Trading Methodology

  
  Education
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I have been reading the latest book from Van Tharp, Super Trader and I want to highlight this passage about daytrading methodologies:

“For example, if you are a daytrader, open up a position and either take a small loss or get out at the end of the day. When you do that, you are not tied to the market all day, and you may find that you take small losses and get huge profits. Simplify your entry technique and concentrate on exits”

Now, lets cross this with Jesse Livermore remarks on the speculative line of least resistance:

“It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it.”

So, we have a powerful daytrading methodology in these two market generalizations. But JL added, “But in actual practice a man has to guard against many things, and most of all against himself – that is, against human nature.”

Rings a bell? Maybe we should all print this post and have it by the trading desk.

Least Resistance

  
  Education
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A man ought not to be led into trading by tokens. He should wait until the tape tells him that the time is ripe. As a matter of fact, millions upon millions of dollars have been lost by men who bought stocks because they looked cheap or sold them because they looked dear. The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in. Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself, because that is his signal to get busy. ——-REMINISCENCES OF A STOCK OPERATOR by Edwin LeFevre

How to Trade in Stocks by Jesse Livermore

  
  Education
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howtotrade
I will just write what  the market is going to do tomorow, for that just have some patience  for time being till then  few quotes from Jesse Livermore’s book How to Trade in Stocks (one of my favorites, originally written in 1940). Pay particular attention to the first quote!

  • “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 human nature never changes”
  • “Just because a stock is selling at a high price does not mean it won’t go higher” (more…)

Rules By Jesse Livermore

  
  Education
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“In cotton I was very successful in my trading for a long time. I had my theory about it and I absolutely lived up to it. Suppose I had decided that my line would be forty to fifty thousand bales. Well I would study the tape as I told you, watching for an opportunity either to buy or to sell. Suppose the line of least resistance indicated a bull movement. Well I would buy ten thousand bales. After I got through buying that, if the market went up ten points over my initial purchase price, I would take on another ten thousand bales. Same thing. Then if I could get twenty points’ profit, or one dollar bale, I would buy twenty thousand more. That would give me my line–my basis for my trading. But if after buying the first ten or twenty thousand bales, it showed me a loss, out I’d go. I was wrong. It might be I was temporarily wrong. But as I have said before it doesn’t pay to start wrong in anything.As I think I also said before, this decribes what I may call my system for placing my bets. It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet.I recollect Pat Hearne. Ever hear of him? Well, he was a very well-known sporting man and he had an account with us. Clever chap and nervy. He made money in stocks, and that made people as him for advice. He would never give any. If they asked him point-blank for his opinion about the wisdom of their commitments he used a favourite race-track maxim of his: “You can’t tell till you bet.” He traded in our office. He would buy one hundred shares of some active stock and when, or if, it went up 1 per cent he would buy another hundred. On another point’s advance, another hundred shares; and so on. He used to say he wasn’t playing the game to make money for others and therefore he would put in a stop loss order one point below the price of his last purchase. When the price kept going up he simply moved up his stop with it. On a 1 per cent reaction he was stopped out. He declared he did not see any sense in losing more than one point, whether it came out of his original margin or out of his paper profits. (more…)

Two quotes from :REMINISCENCES OF A STOCK OPERATOR

  
  Education
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Doing The Right Thing

The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. A trader gets to play the game as the professional billiard player does—that is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position.

Price Tendency

You watch the market—that is, the course of prices as recorded by the tape—with one object: to determine the direction—that is, the price tendency. Prices, we know, will move either up or down according to the resistance they encounter. For purposes of easy explanation we will say that prices, like everything else, move along the line of least resistance. They will do whatever comes easiest, therefore they will go up if there is less resistance to an advance than to a decline; and vice versa.

Rules By Jesse Livermore

  
Analysis, Education
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“In cotton I was very successful in my trading for a long time. I had my theory about it and I absolutely lived up to it. Suppose I had decided that my line would be forty to fifty thousand bales. Well I would study the tape as I told you, watching for an opportunity either to buy or to sell. Suppose the line of least resistance indicated a bull movement. Well I would buy ten thousand bales. After I got through buying that, if the market went up ten points over my initial purchase price, I would take on another ten thousand bales. Same thing. Then if I could get twenty points’ profit, or one dollar bale, I would buy twenty thousand more. That would give me my line–my basis for my trading. But if after buying the first ten or twenty thousand bales, it showed me a loss, out I’d go. I was wrong. It might be I was temporarily wrong. But as I have said before it doesn’t pay to start wrong in anything.

As I think I also said before, this decribes what I may call my system for placing my bets. It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet.

I recollect Pat Hearne. Ever hear of him? Well, he was a very well-known sporting man and he had an account with us. Clever chap and nervy. He made money in stocks, and that made people as him for advice. He would never give any. If they asked him point-blank for his opinion about the wisdom of their commitments he used a favourite race-track maxim of his: “You can’t tell till you bet.” He traded in our office. He would buy one hundred shares of some active stock and when, or if, it went up 1 per cent he would buy another hundred. On another point’s advance, another hundred shares; and so on. He used to say he wasn’t playing the game to make money for others and therefore he would put in a stop loss order one point below the price of his last purchase. When the price kept going up he simply moved up his stop with it. On a 1 per cent reaction he was stopped out. He declared he did not see any sense in losing more than one point, whether it came out of his original margin or out of his paper profits. (more…)

Jesse Livermore / "How to trade stocks"

  
  Education
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–“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.”

–“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”

–Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

–“It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”

–“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”

–“When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.”

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

–A prudent speculator never argues with the tape. Markets are never wrong–opinions often are.

–Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.

–“I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans–and human nature never changes.”

–When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.”

–“I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time job–perhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.”

–“The big money is made by the sittin’ and the waitin’–not the thinking. Wait until all the factors are in your favor before making the trade.”

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…)

Jesse Livermore :Timeless lessons

  
  Education
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All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.

The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.

Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.

Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.

When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.

Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.

A prudent speculator never argues with the tape. Markets are never wrongopinions often are.

Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.

I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humansand human nature never changes.

When you make a trade, you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.

I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time jobperhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.

The big money is made by the sittin’ and the waitin’not the thinking. Wait until all the factors are in your favor before making the trade.

It was never my thinking that made big money for me. It was my sitting…Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after this that a stock operator can make big money. it is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of ignorance.

Give up trying to catch the last eighth – or the first. These two are the most expensive eighths in the world.

Without faith in his own judgment no man can go very far in this game. That is about all I have learned – to study general conditions, to take a position and stick to it.

Remember that stocks are never to high for you to begin buying or too low to begin selling.

That is where the tape comes in – to enable you to decide as to the proper time for beginning. Much depends upon beginning at exactly the right time. (more…)

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