Jesse Livermore: Lessons From A Legendary Trader.
Born in 1877, Jesse Livermore is one of the greatest traders that few people know about. While a book on his life written by Edwin Lefèvre, "Reminiscences of a Stock Operator" (1923), is highly regarded as a must-read for all traders, it deserves more than a passing recommendation. Livermore, who is the author of "How to Trade in Stocks"(1940), was one of the greatest traders of all time. At his peak in 1929, Jesse Livermore was worth $100 million, which in today's dollars roughly equates to $1.5-13 billion, depending on the index used.
The enormity of his success becomes even more staggering when considering that he traded on his own, using his own funds, his own system, and not trading anyone else's capital in conjunction. There is no question that times have changed since Mr. Livermore traded stocks and commodities. Markets were thinly traded, compared to today, and the moves volatile. Jesse speaks of sliding major stocks multiple points with the purchase or sale of 1,000 shares. And yet, despite the difference in the markets, such automation increased liquidity, technology, regulation and a host of other factors that still drive the markets today.
The Test of Time.
For instance, if a stock made a $50 low, bounced up to $60 and was now heading back down to $50, Jesse's rules stipulated waiting until the pivotal point was in play in order to trade. If that same stock moved to $48, he would enter a trade on the short side. If it bounced up off the $50 level, he would enter long at $52, closely watching the $60 level, which is also a "pivotal point." A rise above $60 would trigger an addition to the position (pyramiding) at $63, for example. Failure to penetrate or hold above $60 would result in a liquidation of the long positions. The $2 buffer on the breakout in this example is not exact; the buffer will differ based on stock price and volatility. We want a buffer between actual breakout and entry that allows us to get into the move early, but will result in fewer false breakouts.
While Jesse did not trade ranges, he did trade breakouts from ranging markets. He used a similar strategy as above, entering on a new high or low but using a buffer to reduce the likelihood of false breakouts. (Find more profitable entry and exit locations with this standard indicator; read Measure Volatility With Average True Range .)
Price patterns, combined with volume analysis, were also used to determine if the trade would be kept open. Some of the criteria Jesse used to determine if he was in the right position were:
Increased volume on breakout. The first few days after the break prices should move in the breakout direction A normal reaction occurs where prices retrace somewhat against the trend, but volume is lower on retracements than it was in the trending direction. As the normal reaction ends, volume increases once again in the direction of the trend.
Deviations from these patterns were warning signals and, if confirmed by price movements back through pivotal points, indicated that exited or unrealized profits should be taken. (For more read our Greatest Investors Tutorial .)
Timing the Market.
Jesse Livermore believed no matter how much we "feel" that we know what is happening, we need to wait for the market to confirm our thesis. And only when it does do we make our trades - and we must do so promptly. (From picking the right type of stock to setting stop-losses, learn how to trade wisely in Day Trading Strategies For Beginners .)
Trade with the trend. Buy in a bull market, short in a bear market. Don't trade when there aren't clear opportunities. Trade using the pivotal points. (Learn how to spot the pivot point from which a new movement will emerge; read Find A Trend With The Partial Retrace .) Wait for the market to confirm opinion before entering. Patience leads to "the big money." Let profits run. Close trades that show a loss (good trades generally show profit right away). Trade with a stop, and know it before you enter. Exit trades where the prospect of further profits is remote (trend is over or waning). Trade the leading stocks in each sector; trade the strongest stocks in a bull market, or the weakest stocks in a bear market. Don't average down a losing position. Don't meet a margin call; close the position instead. Don't follow too many stocks.
Summing Up Jesse Livermore's Strategy.
The rules for trading were not fully formulated (not the case for most of his losses). The rules were not followed.
For today's trader, these are still likely the culprits that keep profits at bay. To be profitable, we must actually create a profitable trading system, and then we must adhere to it in actual trading.
Jesse outlined a simple trading system for us: wait for pivotal points before entering a trade. When the points come into play, trade them using a buffer, trading in the direction of the overall market. Let the price dictate our actions and stay with profitable trades, until there is good reason to exit the trade. Losses should be small and trading should be avoided when there are no clear opportunities. When there are trading opportunities, trade stocks that are most likely to move the most. (For more books, check out Ten Books Every Investor Should Read .)
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Jesse Livermore's 21 Trading Rules.
Jesse Livermore is perhaps the most famous stock trader of all-time.
Back in the early part of the 20th century, Livermore made and lost millions shorting the market.
"Reminiscences of a Stock Operator" by Edwin Lefevre, a fictionalized account of Livermore's path from small-time bucketeer to big-time stock trader, is one of the most widely-read and revered books on trading.
In the introduction to a recent edition of "Reminiscences," William O'Neil, founder of Investor's Business Daily, wrote that, "in my 45 years of experience in this business, I have only found 10 or 12 books that were of any real value - Reminiscences is one of them."
Today, many in the market know Jesse Livermore from the pseudonymous Twitter account of the same name.
And while the modern "Livermore" offers some some great market commentary, the real Jesse Livermore offered the most incisive commentary on markets, all of which still holds up today.
Back in early 2013, Raymond James strategist Jeff Saut reflected on Livermore in his weekly commentary, writing that, " Years ago I studied the tactics of Jesse Livermore, along with a number of other stock market operators, and have found many of those strategies to be as valid today as they were decades ago."
In that commentary Saut included Livermore's 21 trading rules, written in 1940.
More than 70 years later, these are rules every trader needs to keep in mind:
Nothing new ever occurs in the business of speculating or investing in securities and commodities. Money cannot consistently be made trading every day or every week during the year. Don't trust your own opinion and back your judgment until the action of the market itself confirms your opinion. Markets are never wrong - opinions often are. The real money made in speculating has been in commitments showing in profit right from the start. At long as a stock is acting right, and the market is right, do not be in a hurry to take profits. One should never permit speculative ventures to run into investments. The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride. Never buy a stock because it has had a big decline from its previous high. Never sell a stock because it seems high-priced. I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction. Never average losses. The human side of every person is the greatest enemy of the average investor or speculator. Wishful thinking must be banished. Big movements take time to develop. It is not good to be too curious about all the reasons behind price movements. It is much easier to watch a few than many. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole. The leaders of today may not be the leaders of two years from now. Do not become completely bearish or bullish on the whole market because one stock in some particular group has plainly reversed its course from the general trend. Few people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.
Trade Successfully Forever - The Livermore Trading System E-Books.
Effective stock trading.
has never been quite this simple or profitable.
Depending how you measure it, Livermore's fortune peaked.
between $1.1 and $14.0 billion dollars in today's money.
"In my interviews with over 30 of the best traders of our time, there were some questions that I raised in each conversation. One of these was: Are there any books that you found particularly valuable and would recommend to aspiring traders? By far, the most frequent response was Reminiscences of a Stock Operator - a book that was over 70 years old!"
--Jack Schwager , author of "Market Wizards" and "The New Market Wizard"
“So when Jesse Livermore, with characteristic frankness, draws back the curtain and reveals publicly his rules for combining time element and prices he takes the spotlight for audacity among the top-flight speculators of the age.”
– Edward Jerome Dies , noted market author, 1940.
“The Livermore Trading System combines both the #1 trading book, Reminiscences of a Stock Operator and How to Trade In Stocks into an immediately profitable stock trading system that will make any trader serious money in the stock market!”
– Garette Haire , author and LTS user.
“When you combine Reminiscences of a Stock Operator, How to Trade in Stocks, the Livermore Trading System and The 5 Minute Investor you end up with everything you need to know about the maximizing returns in the stock market; far superior to any professional money manager” – Garette Haire.
Which stocks will give you the greatest returns with the least amount of risk - Learn Jesse Livermore’s secret stock plan.
How to build the LTS Perfect Stock Portfolio for all markets.
How to identify, own and trade the perfect stocks for you!
It will maximize your 401k plan as well.
– Garette Haire , author and LTS user.
“ What I wanted to discover was a method of recognizing what constituted the minor swings. I realized a market in a definite trend still had numerous intermediate oscillations. They had been confusing. They were no longer to be my concern.”
J. Livermore.
The Livermore Trading System use of the new "Key Price" will get any trader in the trend and get them out at the end.
“ Out of it all emerges my theory of time element in trading, which I regard as the most important factor in successful speculation.”
By using this one thought your trading will improve 100% - Explained!
“ Whenever I have had the patience to wait for the market to arrive at what I call a “Pivotal Point” before I started to trade, I have always made money in my operations.”
The Livermore Trading System teaches identification of the different types of Pivotal Points - Easy and Profitable.
The Livermore Trading System is about You Taking Stock Profits.
You are here for a reason. It is assumed that it is because you want to trade and make money in the Stock Market. Because you are reading this, you have researched trading and found that without parallel the greatest stock trader that ever lived was Jesse Livermore. It is through his past words that today you will begin to make a significant difference in your trading. It's time for you to make money in the market. Buy the 2nd best stock trading book ever written.
The challenge that you and many traders have in reading his book and by reading Livermore’s fictional biography by Edwin Lefevre “Reminiscences of a Stock Operator” is not with all of his stock market insight. We all know that market experts around the world agree that those books are some of the best trading books ever written. Rather might our challenge be is how does one take Livermore’s past work and profit from it today and for years to come. The Livermore Trading System will show you how. It is a complete stock trading system like no other. Now go make Jesse proud!
To take your trading to the next level, visit jesselivermoretrading to schedule a session with Coach Garette.
(for serious traders only!)
Livermore Trading System.
107 Driftwood Lane.
Mills River NC 28759.
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" I can only light the way, and I shall be happy, if through my guidance, you are able to take more money out of the stock market than you put in." - J. Livermore.
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