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Trading Wisdom – Jesse Livermore

  
  Education
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JesseLivermore

Many books have been written by and about Mr. Livermore. He was a fascinating individual who reportedly made $100 million in a single day in the 1929 crash.
Legend has it that during the crash J.P. Morgan personally walked over to the N.Y. Stock exchange to ask Jesse Livermore to stop selling and start buying in order to save the markets.
He was an expert at following the right trend, with the exception of marriage. His wife was married about four times prior to marrying him, and all four husbands killed themselves, as did Jesse eventually. Not quite marriage counselor material, he is nonetheless one of the greatest wells of trading wisdom from which I have quenched my thirst in the past.
I am a much better trader because of Jesse Livermore. Every time I get stuck in a trading rut, I review my notes on his trading philosophies, which I would like to share with you below. (more…)

Study Your Mistakes

  
  Education
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mistakenew

I have always found it profitable to study my mistakes. Thus I eventually discovered that it was all very well not to lose your bear position in a bear market, but that at all times the tape should be read to determine the propitiousness of the time for operating. If you begin right you will not see your profitable position seriously menaced; and then you will find no trouble in sitting tight.

—-REMINISCENCES OF A STOCK OPERATOR by Edwin LeFevre

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.

The Psychology Of Market Timing

  
  Education
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The biggest enemy, when market timing the stock market via mutual funds, ETF’s, even individual stocks (or in any trading for that matter), is within ourselves. Success is possible only when we learn to control our emotions.

Edwin Lefevre’s “Reminiscences of a Stock Operator” (1923) offers advice that still applies today:

Caution Excitement (and fear of missing an opportunity) often persuades us to enter the market before it is safe to do so. After a down trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.

It is important to follow a tried and true timing strategy that puts you in the right position for established trends, and also gets you out of failed trends quickly to protect capital. Excitement results in losses more often than not.

Patience Wait for the right market conditions. There are times when it is wise to stay out of the market and observe from the sidelines. (more…)

Thoughts on Reminiscences of a Stock Operator

  
  Education
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Dear Reader/Traders….If u had not Read this Book…then u had not read anything……its a Bible …Buy and Read atleast once ………..

One of the fascinating things in Reminiscences of a Stock Operator is the constant interplay between duplicit and dishonest practices of Livermore himself and the crooks he deals with. It reminds one of the crossroaders book where the two best friends cheat each other with a mechanical mirror and other means in constant games between them. Only when they realize that the stake between them keeps getting smaller do they realize that they’re both getting poorer because they have to pay the third crook, the “mechanic” for the use of the mirror. The rake was constant. They both show no compunction about cheating their best friends until they realize they’ve been viged to death by a third party.

Livermore is constantly appalled that in the nefarious schemes of manipulation and cornering that the holders of worthless securities engage in with him, that his customers have no honor among mutual thieves like the crossroaders. His terms for a manipulation are as follows: suppose the manipulators have 200000 shares of a listed stock at 40. Livermore will take call on all 200000 shares of stock at 40 for 1 year. They will also put up 6 million in cash for him to make a market and engage in his own insider trading with.

I doubt that the two most wealthy fellow travelers themselves and friends of the Oval who engage in such transactions with the triangle of their colleagues in the banking, and legislative branches receive such favorable terms or insider information today, albeit they seem to have more influence on the terms and policies.

In any case, how would you value what Livermore’s normal take was for such a manipulation? He receives a call for 1 year on 2000000 shares and that’s worth about 10%, so 800000. Then use of 6 million for manipulation for 1 year, enablling him to front run with that stake. How to value that aspect? Let’s say 500000.

He engaged in these transactions in the 1920-1929 period. No wonder Livermore was worth 50 million at the height of 1929 before losing it all, and declaring bankruptcy the fourth time, and going bust for at least the twelth time in 1934, before his suicide at the Sherry Netherlands.

it reminds one of the radi0 show tag line “crime does not pay”.

21 Trading Quotes

  
  Education
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1. “Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.” ~ Mark Twain
2. “The market can stay irrational longer than you can stay solvent.” ~ John Maynard Keynes.
3. “I never buy at the bottom and I always sell too soon.” ~ Baron Rothschild
4. “When the facts change, I change my mind. What do you do, sir?” ~ John Maynard Keynes
5. “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” ~ Warren Buffett
6. “It is not our duty as speculators to be on the bull side or the bear side but upon the winning side.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator
7. “The  principles of successful speculation are based on the supposition that people will continue in the future to make the mistakes that they made in the past.” ~ Thomas F. Woodlock
8. “It never was my thinking that made the big money for me. It was always my sitting tight. Got that?” ~ Mr. Partridge in Edwin Lefevre’s Reminiscences of a Stock Operator
9. “They say you never grow poor taking profits. No, you don’t.  But neither do you grow rich taking a four-point profit in a bull market.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator
10. “Remember that prices are never too high for you to begin buying or too low to begin selling.  But after the initial transaction, don’t make a second unless the first shows you a profit.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator
11. “A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and the soul.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator
12. “If a man didn’t make mistakes, he’d own the world in a month.  But if he didn’t profit by his mistakes, he wouldn’t own a blessed thing.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator
13. “The man who is right always has two forces working in his favor – basic conditions and the men who are wrong.  In a bull market bear factors are ignored.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator
14. [What advice would you give the novice trader?] – “First, I would say that risk management is the most important thing to be well understood.  Undertrade, undertrade, undertrade is my second piece of advice.  Whatever you think your position ought to be, cut it at least in half.” ~ Bruce Kovner in Jack Schwager’s Market Wizards
15. “There is probably no class of trades with a higher failure rate than impulsive trades.” Jack Schwager in Market Wizards
16. [What is the most important advice you could give the novice trader?] – “Trade small because that’s when you are as bad as you are ever going to be.  Learn from your mistakes.” ~ Richard Dennis in Jack Schwager’s Market Wizards
17. “The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses.  If you can follow these three rules, you may have a chance.”  ~ Ed Seykota in Jack Schwager’s Market Wizards
18. “Charting is a little like surfing.  You don’t have to know a lot about the phsyics of tides, resonance, and fluid dynamics in order to catch a good wave.  You just have to be able to sense when its’s happening and then have the drive to act at the right time.” ~ Ed Seykota in Jack Schwager’s Market Wizards
19. “I have two basic rules about winning in trading as well as in life: (1) If you don’t bet, you can’t win.  (2) If you lose all your chips, you can’t bet.” ~ Larry Hite in Jack Schwager’s Market Wizards
20. “Perhaps the most important rule is to hold on to your winners and cut your losers.  Both are equally important.  If you don’t stay with your winners, you are not going to be able to pay for the losers.” ~ Michael Marcus in Jack Schwager’s Market Wizards
21. “Lose your opinion – not your money” ~ Unknown

10 Quotes of Jesse Livermore

  
  Education
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When seasoned traders get together, we have a sort of “secret handshake” that the uninitiated may not notice.  We ask each other if they’ve read Reminiscences of a Stock Operator.  The insiders reply by telling you the number of times they’ve read the book.  Novices ask for the author’s name.

Recently, I’ve been rereading Jon Markman’s wonderful annotated version of this Jesse Livermore classic.  This special edition even has a forward written by Paul Tudor Jones.  As I revisited Mr. Livermore’s wisdom, I realized that so much of the trading baton that I’ve endeavored to pass on to my readers is directly or indirectly the result of the special batons he passed on to me.  In considering this, I feel it’s only appropriate to salute the man.  Afterall, I have patterned myself after him and my favorite quotes come from this truly extraordinary trader.  As Dr. George Lane, the creator of the stochastic oscillator, once told me over dinner, “Gatis, you can never get enough of that good stuff.” 

My trading approach is organized into 10 stages that I call Tensile Trading.  For this week’s blog, I’ve chosen a few of my favorite Jesse Livermore quotes for each of these 10 stages.
1. Money Management:
    * “I trade on my own information and follow my own methods.”
    * “The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”

2. Business of Investing:
    * “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street.  As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
    * “My satisfaction always came from beating the market, solving the puzzle.  The money was the reward, but it was not the main reason I loved the market.  The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me.  It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history.  For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…” (more…)

21 Quotes for Traders

  
  Education
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1. “Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.” ~ Mark Twain

2. “The market can stay irrational longer than you can stay solvent.” ~ John Maynard Keynes.

3. “I never buy at the bottom and I always sell too soon.” ~ Baron Rothschild

4. “When the facts change, I change my mind. What do you do, sir?” ~ John Maynard Keynes

5. “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” ~ Warren Buffett

6. “It is not our duty as speculators to be on the bull side or the bear side but upon the winning side.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator

7. “The  principles of successful speculation are based on the supposition that people will continue in the future to make the mistakes that they made in the past.” ~ Thomas F. Woodlock

8. “It never was my thinking that made the big money for me. It was always my sitting tight. Got that?” ~ Mr. Partridge in Edwin Lefevre’s Reminiscences of a Stock Operator

9. “They say you never grow poor taking profits. No, you don’t.  But neither do you grow rich taking a four-point profit in a bull market.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator

10. “Remember that prices are never too high for you to begin buying or too low to begin selling.  But after the initial transaction, don’t make a second unless the first shows you a profit.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator

11. “A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and the soul.” ~ Jessie Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator (more…)

Recommended Books for Traders

  
  Education
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As Jesse Livermore said: “Trading is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or for the get-rich-quick adventurer.” In other words, to excel in the stock market, you have to work hard, have emotional control, and develop confidence in your strategy. I constantly get asked to recommend books that can help with these areas of trading. There are so many good ones out there, but here are a few that I suggest.
(If you click on the titles, you can get a more detailed description from Amazon.com).
How to Make Money in Stocks (4th Edition), William O’Neil
How to Trade in Stocks, Jesse Livermore
Reminiscences of a Stock Operator, Edwin Lefevre
The Disciplined Trader, Mark Douglas
Trading in the Zone, Mark Douglas
Trader Vic-Methods of a Wall Street Master, Victor Sperandeo
Trader Vic II-Principles of Professional Speculation, Victor Sperandeo
How I Made $2,000,000 in the Stock Market, Nicolas Darvas
The Battle for Investment Survival, Gerald Loeb
Confessions of a Street Addict, James Cramer
There are 3 Market Wizards books all written by Jack Schwager:
Market Wizards
The New Market Wizards
Stock Market Wizards
Confidence and emotional control are extremely important in order to become a successful trader. I believe the ideas taught in the following “self-help” books can help develop that “mental toughness” that’s needed. The concepts learned can also be applied to many areas of our lives:
Think and Grow Rich, Napoleon Hill
You’ll See It When You Believe It, Dr. Wayne Dyer
The Power of Positive Thinking, Norman Vincent Peale
The Magic of Thinking Big, David Schwartz
Awaken the Giant Within, Anthony Robbins

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