Jesse Livermore

[winston]

JL went bankrupt three times.

Does anybody remember why he went bankrupt on the 3 occasions ?

Was it because he was still shorting the market eventhough the market has changed from a bear to a bull market ?

( I think JL was always a depressed, negative and skeptical person. So he always see only the half-empty portion of the glass ).

[memphisb]

If I rem correctly, I haven't finished his book.

1 st time He use his old method of trading on the bucket shops where prices are handwritten. He is at the floor where he work as a marker and thus he recongise the patterns/trend as it formed. However, when he go to big city. I think Manhatten? The price he saw/bid is always slower then the one he saw on the electronic prices. Technology ruin him and his tactics.

2 nd time . He listened to a friend for insider advice and going against his instinct. He suffered huge lost.

3 nd time . None knows I think. I haven't reach the relevant chapters.

[iam802]

I think we can also add on and say that JL break his own rules about risk management or cut-loss....and end up going bankrupt a few times.

Risk management and position sizing is a very important part of the game as well.

Try playing Texas Poker on the computer and you will understand how it relates to gambler's ruin etc.

[memphisb]

Hi 802,

what sort of position sizing are we talking about? position as in pivol points and sizing as in capital vested?

thanks
mb

[iam802]

I see it as sizing as in capital vested.

[memphisb]

I see it as sizing as in capital vested.

I am kinda 50/50 on this as I had the experience overfocusing on high capital vested stocks and lost monitoring of lower capital stocks. And it turn out that the gains on high captial stocks is lower then low capital stocks. Imagine this may turn out vice versa. disasterous indeed. And it depends on how the port foilo is constructed.

I would like to add on it depends on the 'nature behaviour of stocks' and its industry. some movements are

just some of my opinons after 2 months

[winston]

Need to re-read the books on Jesse Livermore.

Is the "Mother of Shorting Opportunities" just around the corner ?

[millionairemind]

Jesse Livermore's Stock Trading Rules
All successful stock and commodity traders have rules for buying and selling. Many traders today still use the trading rules Jesse Livermore first devised almost a century ago.

Jesse Livermore constructed his rules over several years while he learned by trial and error what worked on the markets. He was guided by one of his favorite principles:

"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."

Trading Rules

Buy rising stocks and sell falling stocks.

Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it's rising you should be long, if it's falling you should be short.

Co-ordinate your trading activity with pivot points.

Only enter a trade after the action of the market confirms your opinion and then enter promptly.

Continue with trades that show you a profit, end trades that show a loss.

End trades when it is clear that the trend you are profiting from is over.

In any sector, trade the leading stock - the one showing the strongest trend.

Never average losses by, for example, buying more of a stock that has fallen.

Never meet a margin call - get out of the trade.

Go long when stocks reach a new high. Sell short when they reach a new low.

Other Useful Trading Guidance

Don't become an involuntary investor by holding onto stocks whose price has fallen.

A stock is never too high to buy and never too low to short.

Markets are never wrong - opinions often are.

The highest profits are made in trades that show a profit right from the start.

No trading rules will deliver a profit 100 percent of the time.

[kennynah]

Obviously, I don't know this stock guru personally and wont even say I am very acquainted with his style of trading. So, what I say below, is really just a discussion rather than to dispute his words...

Only enter a trade after the action of the market confirms your opinion and then enter promptly.

It is not always wise to await for too many signals to confirm one's opinion of the market direction. As time progresses, and more information surfaces, things become clearer indeed, but most often the opportunity would be lost.

I am not suggesting that one should be careless and bet on a hunch. I am merely suggesting that one should not be paralyzed by too much analysis.. A good balance is needed between sufficient data/info and a sense of judgement and experience.

Everyone, over time, will have learned how to tamper one's impatience and procrastination....

Markets are never wrong - opinions often are.

Markets are a consolidated set of opinions... those of yours and mine.... it would be more appropriate to say that to win the market, at times, we must align our opinion to that of the markets' and other times, we must fade them...

Therefore, to me, it is irrelevant that our opinion is wrong or right... this concept bears no meaning to me...
Our opinions are either in sync of out of sync with where those opinions that really matter; those that move the markets...


eh...if i dont make sense, which i often don't.... dont throw spanner and bottles at me hor...

[winston]

Seven Trading Lessons from a Legend by Quint Tatro

The late Jesse Livermore is considered one of the best traders of all time. His exploits have been chronicled in several books, with the most widely read being Reminiscences of a Stock Operator by Edwin Lefevre, originally published in 1923.

Livermore was wealthy and broke several times over during his tumultuous life, which ended in his suicide. His ability to make and lose millions garnered him many lessons which the trading community have enshrined over the decades since his death. Yet these lessons and rules remain as pertinent today as they were in the early twentieth century.

We’ll take a look at several of his trading rules to remind us why we must have a plan in place before trading a dollar of our hard-earned money.


Lesson Number One: Cut your losses quickly.

Nowhere is this rule more apparent than in the modern-day crash our markets experienced in the fall of 2008. For those market participants who “bought, held, and hoped,” the gut-wrenching drop left them paralyzed, disillusioned, and angry at the market. They felt like they had no control and no choice as the losses spiraled down the rabbit hole. The primary culprits of this death trap are hopeful thinking and fearful paranoia.

As a market slides lower, a trader will rationalize his losing position by either doubling down (buying more at these now-cheaper prices) or at the very least, holding on because "there's just no way this market can go lower." If merely this one simple rule was implemented to “cut your losses," the vast majority of traders would be light years ahead of the crowd.

As soon as a trade is contemplated, a trader must know at what point in time he'll be proven wrong and exit a position. If a trader doesn't know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

Trading without an exit plan is like driving a car without insurance. You might go years without a major crash, but when the crash occurs (and it will), you want to be protected from a major financial disaster.


Lesson Number Two: Confirm your judgment before going all in.

Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns. He admitted that his biggest mistake was holding on to a position as it ran against him, and then selling out when the pain got too great.

Livermore learned to remedy this dilemma by taking on a small line at first, and only adding when he was proven correct. There are several decent ways to buy more in a winning position (pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry) but the take home is to buy in the direction of your winning trade -- and never when it goes against you.


Lesson Number Three: Watch leading stocks for the best action.

One hundred years, ago Mr. Livermore didn't have near as many issues to track, yet he made it his mission to follow the market makers and big players when their money flooded into a specific stock or commodity. Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.

Today, traders have the ability to track sectors, ETFs, and the footprints of the best mutual-fund managers to ascertain where the heavy hitters are moving their capital. Superstars such as Google (GOOG), Goldman Sachs (GS), and General Electric (GE) can also show their hand when looking at the bigger picture of overall market health. Traders ignore these tells at their own peril.


Lesson Number Four: Let profits ride until price action dictates otherwise.

Perhaps the most famous quote attributed to Livermore is, "It never was my thinking that made the big money for me. It always was my sitting." Traders are wired to be “doing something,” and this can cause churning, over-trading, getting out of positions too soon, and making your broker the wealthy one. The famous Turtle Traders were trend traders who made few trades and had learned the importance of staying in a winning trade.

For today’s traders, there are multiple variations to keep you in a trade. It's not so important which method you implement, but that you do recognize when to hold a winner for maximum potential, and when a trend has changed character and it's time to ring the register.

One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. Even day and swing traders will benefit from letting a partial position play out when all indicators hint that more upside might be in the cards. Always remember this rule is letting a profitable position run, but it's not a license to bury one’s head on a losing position.


Lesson Number Five: Buy all-time new highs.

Traders love a bargain -- trying to bottom feed, buying in on limit orders instead of market to save a penny, buying on dips, and various other trickery to try and catch the swing low of a trade. These same traders can also recount when saving a penny cost them a dollar, buying that dip was only the start of a long downtrend, and buying new lows only led to lower prices and more misery.

Livermore understood that when a trader buys new highs, that for that moment in time, the only holders are happy holders. Blue skies are above and there are no longer-term investors waiting to sell once they get back to break even. The psychological merits of buying all-time or 52-week highs are immense and shouldn't be discounted as a part of your overall strategy.


Lesson Number Six: Use pivot points to determine trends.

Livermore famously called them “pivotal points” and today they're better known as swing highs and swing lows. When going long, traders are continually looking for confirmation by assessing the strength of a move.

Higher highs and higher lows are a solid indicator that a current uptrend is merely taking a slight pause, and the odds of higher prices are in their favor. These same pivot points are integral to drawing support and resistance lines to give traders their line in the sand. Taken together, trend lines and pivot points can enlighten a trader to a change in momentum, which may change the character of a trade.


Lesson Number Seven: Control your emotions.

Easier said than done in everyday life, let alone in one’s trading account, controlling those emotional demons that lurk under the surface may be the most difficult task for traders (beginners and seasoned alike) to master.

You finally hit a quick 10-point winner, and the euphoria and pride rush in to give you a virtual high-five. You hold on past your mental stop-loss and watch your equity bleed like a leaking faucet, which in turn causes you to seethe with frustration, whether on the outside or internally. If there's one absolute rule, it's that every trader has to confront the role they allow their emotions to play in their trading life.

Livermore chronicles the times when he was trading for revenge, to get back his lost stake, or merely to prove he was right. By his own admission, these were terrible reasons to put on a trade, and he was at his finest when he blocked out the noise of his day and just watched the tape.

Our goal as traders should be to also make a critical yet honest assessment of the areas we can improve so the bottom line will support our claims of truly being seasoned traders. Adhering to the time-tested rules of Jesse Livermore would be a great start for anyone.

http://www.minyanville.com/articles/etf ... /25187/p/1