- Jesse Livermore is known for both colossal gains and losses. He made $million in 1929, and by 1934 he had lost all of it (an example that confirms the huge risk involved in stock trading).
- George Soros is one of history’s most successful stock and forex traders. He gained the nickname “the man who broke the bank of England” when he made $1 billion profit from selling $10 billion worth of pounds. He is the chairman of Soros Fund Management.
- Richard Dennis is a successful commodity trader based in Chicago. He made an estimated $200 million over a period of ten years from market speculating.
- Paul Tudor Jones became famous after the market crash of 1987 to make a whopping $100 million from shorting stocks. He is the founder of Tudor Investment Corporation.
- William Delbert Gann is known for developing technical indicators like Gann Angles and the Square of 9. He was a trader who used market forecasting techniques based on astrology, geometry, and mathematics.
- Bill Lipschutz turned $12000 investment in the stock market to $25000 in a few months but lost all of it. He then moved to forex trading, where he has made over $300 million.
- John R. Taylor Jr started as a political analyst for a chemical bank before becoming their forex analyst. He is the owner of FX Concepts, which is a currency managing firm.
- Stanley Druckenmiller is a successful trader who started as an oil analyst for the Pittsburgh National Bank. He was a part of a deal while working at George Soros that raked in $1 billion.
- Andrew Krieger is one of the best trader in the world. He sold kiwi, a New Zealand currency, a trade valued more than the total currency supply. He got revenue of $300 million from the trade.
- Michael Marcus is one of the best and most successful forex traders in the world. Legend Ed Seykota trained him. During the presidency of Ronald Reagan, Marcus held positions of almost $300 million in German marks.
Archives of “stock market crash” tag
rssThe Heston Recipe
Most traders are intimately familiar the implied volatilities of equity options. These implied volatilities are often smoothed to avoid the temporary spikes in the strike/maturity surface that can lead to butterfly and calendar arbitrage. Many trading desks and market makers use the Heston stochastic volatility model for smoothing.
To understand the genesis behind Heston model, and why it is so important, we must revisit an event that shook financial markets around the world: the stock market crash of October 1987. The consequence on the options market was an exacerbation of smiles and skews in the implied volatility surface which has persisted to this day. This brought into question the restrictive assumptions behind the Black-Scholes option pricing model, the most tenuous of which is that continuously compounded stock returns be normally distributed with constant volatility. A number of researchers since then have sought to eliminate the constant volatility assumption in their models, by allowing volatility to be time-varying. (more…)
Wisdom from Legendary Traders
“I absolutely believe that price movement patterns are being repeated; they are recurring patterns that appear over and over. This is because the stocks were being driven by humans- and human nature never changes”. -Richard Dennis (Turned 400 dollars into a fortune of at least 200 million dollars by using his remarkable trading skills). |
1929 Wisdom
From John Hussman:
Galbraith reminds us that the 1929 market crash did not have observable catalysts. Rather, his description is very much in line with the view that the market crashed first, and the underlying economic strains emerged later: “the crash did not come – as some have suggested – because the market suddenly became aware that a serious depression was in the offing. A depression, serious or otherwise, could not be foreseen when the market fell. There is still the possibility that the downturn in the indexes frightened the speculators, led them to unload their stocks, and so punctured a bubble that had in any case to be punctured one day. This is more plausible. “Some people who were watching the indexes may have been persuaded by this intelligence to sell, and others may have been encouraged to follow. This is not very important, for it is in the nature of a speculative boom that almost anything can collapse it. Any serious shock to confidence can cause sales by those speculators who have always hoped to get out before the final collapse, but after all possible gains from rising prices have been reaped. Their pessimism will infect those simpler souls who had thought the market might go up forever but who now will change their minds and sell. Soon there will be margin calls, and still others will be forced to sell. So the bubble breaks.”
Nuggets of Wisdom from Jesse Livermore, Greatest Trader Ever
In the early part of the 20th century, Jesse Livermore was the most successful (and most feared) stock trader on Wall Street. He called the stock market crash of 1907 and once made $3 million in a single day. In 1929, Livermore went short several stocks and made $100 million. He was blamed for the stock market crash that year, and solidified his nickname, “The Boy Plunger.” Livermore was also a successful commodities trader.
I think the most valuable knowledge one can gain regarding trading and markets comes from studying market history, and studying the methods of successful traders of the past. Jesse Livermore and Richard Wyckoff are two of the most famous and successful traders of the first half of the 20th century. Many of the most successful traders of today have patterned their trading styles after those of the great traders of the past.
Here are some valuable nuggets I have gleaned from the book, “How to Trade Stocks,” by Jesse Livermore, with added material from Richard Smitten. It’s published by Traders Press and is available at Amazon.com. Most of the nuggets below are direct quotes from Livermore, himself.
• “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.
• Livermore’s money made in speculation came from “commitments in a stock or commodity showing a profit right from the start.” Don’t hang on to a losing position for very long.
• “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.” (more…)
10 Favorite Quotes from Reminiscences of a Stock Operator
Although Jessie’s life ended too early, his words of wisdom live on for discovery. The book is filled with obscure references and colorful characters long forgotten by the general public, but the key themes of the text remain as relevant as ever. Therefore, I’ve pulled out my favorite quotes, below, though I highly recommend reading the entire text.
- 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.
- The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among professionals.
- I never lose my temper over the stock market. I never argue the tape. Getting sore at the market doesn’t get you anywhere.
- They say you can never go poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market. Where I should have made twenty thousand I made two thousand. That was what my conservatism did for me.
- Remember that stocks are never too high for you to begin buying or too low to begin selling.
- A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street…nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
- 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 the sitting. Got that? My sitting tight!
- Losing money is the least of my troubles. A loss never bothers me after I take it…But being wrong—not taking the loss—that is what does the damage to the pocketbook and to the soul.
- Prices, like everything else, move along the line of least resistance. They will do whatever comes easiest.
- The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you hope that every day will be the last day—and you lose more than you should had you not listened to hope—the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out—too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts…Instead of hoping he must fear; instead of fearing he must hope.
Trading Wisdoms
“I absolutely believe that price movement patterns are being repeated; they are recurring patterns that appear over and over. This is because the stocks were being driven by humans- and human nature never changes”.
-Jesse Livermore (Considered by many to be the greatest stock market operator ever. Made 100 million dollars in 1929 stock market crash. Made several other multi-million dollar fortunes in his trading career).
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“You have to cut your losses fast. The secret for winning in the stock market does not include being right all the time. The key is to lose the least amount possible when you are wrong”.
-William J. O’Neil (In my opinion, the best stock market operator in the world today. Has made an incredible fortune trading the stock market. O’Neil is the founder of Investors Business Daily. Much of my stock market education and training has been from William J. O’Neil).
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“Whatever method you use to enter a trade, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend”.
-Richard Dennis (Turned 400 dollars into a fortune of at least 200 million dollars by using his remarkable trading skills).
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“I am primarily a trend trader. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell”.
-Ed Seykota (One of the greatest traders of all time. Turned 5000 dollars into an incredible 15 million dollars or more).
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“The most important rule of trading is to play great defense”.
-Paul Tudor Jones (An amazingly consistent and successful trader. In 2006, earned a whopping 750 million dollars).
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“Being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong”.
-Bernard Baruch (Fantastic trader who earned ten’s of millions of dollars in the first part of the 20th century).
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“The greatest safety lies in putting all your eggs in one basket and watching that basket”.
-Gerald M. Loeb (Amassed many millions in the stock market during his long career).
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“I am looking for the strongest stocks in the market, in terms of both earnings and the technical picture”
-David Ryan (Multiple time winner in the stock division of the U.S. Investing Championships).
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“Most of my success has been due to my hanging on while my profits mounted. There is the big secret”.
-Arthur W. Cutten (Gained wealth and prominence, early in the 20th century, as a commodity trader, mostly in the wheat market.
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“I think the secret is cutting down the number of trades you make. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone”.
– Michael Marcus (In a ten-year period, he multipled his company account by an incredible 2500 times).
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“Whenever I enter a position, I have a predetermined stop. I know where I’m getting out before I get in”.
-Bruce Kovner (One of the world’s largest traders in the 1980’s. Made profits of over 300 million trading for himself).
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“I try to assemble facts and decide what kind of scenario I think will unfold”.
-Bill Lipschutz (One of the most successful currency traders ever).
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“Virtually every successful trader I know ultimately ended up with a trading style suited to his personality”.
-Randy McKay (Turned $2000 into $70,000 his first year of trading. Went on to double digit million dollar gains).
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“The biggest misconception is the widespread belief that it is easy to make a living trading in the stock market”.
-Stuart Walton (Fantastic stock trading track record in the 1990’s).
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“If you decide to trade for a living, you have to treat it just like any other business endeavor and go into it with a plan”.
-Mark D. Cook (Great annual returns trading the markets).
The Hindenburg Omen Has Arrived
Easily the most feared technical pattern in all of chartism (for the bullishly inclined) is the dreaded Hindenburg Omen. Those who know what it is, tend to have an atavistic reaction to its mere mention. Those who do not, can catch up on its implications courtesy of Wikipedia, but in a nutshell: “The Hindenburg Omen is a technical analysis that attempts to predict a forthcoming stock market crash. It is named after the Hindenburg disaster of May 6th 1937, during which the German zeppelin was destroyed in a sudden conflagration.” Granted, the Hindenburg Omen is not a guarantee of a crash, and the five criteria that must be met for a Hindenburg trigger typically need to reoccur within 36 days for reconfirmation. Yet the statistics are startling: “Looking back at historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next forty-days.” The last Hindenburg Omen occurred during the lows of 2009. Today, we just had another (unconfirmed) Hindenburg Omen. It is time to batten down the hatches – something big is coming.
As a reminder, the 5 criteria of the Omen are as follows:
- That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.
- That the smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.
- That the NYSE 10 Week moving average is rising.
- That the McClellan Oscillator is negative on that same day.
- That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.
Today, all five conditions were satisfied. June 2008 was another such reconfirmed event, and as Barron’s pointed out then, “there’s a 25% probability of a full-blown stock-market crash in the next 120 days. Caveat emptor.” Boy was the emptor caveating within 120 days (especially if said emptor was named Dick Fuld). Which brings us to the present: should the Omen be reconfirmed within 36 days, all bets are off.
Learn from Jesse Livermore's personal life than from his trading techniques :Jesse Livermore Boy Plunger
Jesse Livermore, the so called “Boy Plunger” and probably the greatest Wall Street Trader who ever lived, died $340,000 in debt.
Many look at his life to learn the secrets of his often extraordinary trading success. A better track for financial prosperity is to study and learn from mistakes he committed in his personal life.
The clues for true riches can be found there. The lessons from his personal failures are exponentially more important for modern investors than his exploits in the commodities and stock markets.
During the Stock Market Crash of 1929, Jesse Livermore made $100 million dollars betting that the stock market would plummet in spectacular fashion.
When he arrived home after another appalling day of market bloodletting in October of 1929, both his wife and mother-in-law met him at the door in tears. (more…)
“Markets Will Fluctuate”
In the 1927 book “Security Speculation – The Dazzling Adventure,” Laurence H. Sloan repeated the now famous anecdote 1 about J.P.Morgan’s view of the stock markets:
History has it that young man once found himself in the immediate presence of the late Mr. J. P. Morgan. Seeking to improve the golden moment, he ventured to inquire Mr. Morgan’s opinion as to the future course of the stock market. The alleged reply has become classic: “Young man, I believe the market is going to fluctuate.
Fluctuate indeed.
That simple truism seems to been lost to some folks, who were taken aback by yesterday’s market decline. The Dow Jones Industrial Average fell 274 points, but that sounds worse than it is; in percentage terms the retreat amounted to 1.24 percent. The Standard & Poor’s 500 Index fell 38.1 points, or 1.54 percent; the Russell 2000 Index of small cap companies fell 1.78 percent (24.6 points) while the Nasdaq Composite Index had a 1.94 percent (123.2 point) fall.
As Bloomberg News noted, “Evidence is building that the market’s long stretch of tranquility is breaking. The S&P 500 swung at least 1 percent in three of the last six sessions after spending the previous three weeks without a move of more than 0.3 percent.”
The collective question investors are asking is “Why here and now?” It is tempting, and probably correct, to simply declare this the well-known random walk of markets. But rather than leave it at that, let us turn a critical eye to some of the explanations that were circulating. Here they are from least convincing to most . . .
Continues at: The Real Reason Markets Swooned Yesterday