Jesse Livermore

Re: Jesse Livermore

Postby millionairemind » Wed Aug 06, 2008 9:21 pm

The book How to Trade in Stocks by JL contains so many time proven strategies and points out the continuing weakness of men in speculation over time. It is amazing that we see the lessons repeated time and again... whether it is 1908 or 2008. Everytime I re-read the book, I learn something new :D

More excerpts from the book How to trade in stocks by JL.

I offer in this book some DON’TS” for investors and speculators. One of the primary “DON’TS” is--one should never permit speculative ventures to run into investments. Don’t become an “Involuntary Investor.” Investors often take tremendous losses for no other reason that that their stocks are bought and paid for.

How often have you heard an investor say: “I don’t have to worry about fluctuations or margin calls. I never speculate. When I buy stocks, I buy them for an investment, and if they go down, eventually they will come back.”

But unhappily for such investors many stocks bought at a time when they were deemed good investments have later met with drastically changed conditions. Hence such so-called “investment stocks” frequently become purely speculative. Some go out of existence altogether. The original “investment” evaporates into thin air along with the capital of the investor. This occurrence is due to the failure to realize that so-called “investments” may be called upon in the future to face a new set of conditions that would jeopardize the earning capacity of the stock, originally bought for a permanent investment.

Before the investor learns of this changed situation, the value of his investment is already greatly depreciated. Therefore the investor must guard his capital account just as the successful speculator does in his speculative ventures. If this were done, those who like to call themselves “investors” would not be forced to become unwilling speculators of the future-nor would trust fund accounts depreciate so much in their value.

mm comments - Think Cosco, YZJ... think Tat Hong... and dozens of stocks on the SGX (including SGX itself, which was a $17 stock, now barely above $7
"If a speculator is correct half of the time, he is hitting a good average. Even 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

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Re: Jesse Livermore

Postby millionairemind » Thu Aug 07, 2008 4:54 pm

Taken from the book How to trade in stocks by JL...

At such times you must “entirely ignore personal opinion and apply strict attention to the action of the market itself

“Markets are never wrong —opinions often are.”

The latter are of no value to the investor or speculator unless the market acts in accordance with his ideas.

Timing--No one man, or group of men, can make or break a market today. One may form an opinion regarding a certain stock and believe that it is going to have a pronounced move, either up or down, and eventually be correct in his opinion but will lose money by presuming or acting on his opinion too soon. Believing it to be right, he acts immediately, only to find that after he has made his commitment, the stock goes the other way. The market becomes narrow; he becomes tired and goes out. Perhaps a few days later it begins to look all right, and in he goes again, but no sooner has he re entered it than it turns against him once more. Once more he begins to doubt his opinion and sells out. Finally the move starts up. Having been too hasty and having made two erroneous commitments, he loses courage. It is also likely that he has made other commitments and is not in a position to assume more. Thus, by the time the real move in the stock he jumped into prematurely is on, he is out of it.

The point I would here emphasize is that after forming an opinion with respect to a certain stock —do not be too anxious to get into it. Wait and watch the action of that stock for confirmation to buy. Have a fundamental basis to be guided by.


MM comments - don't ignore individual price/vol action... if mkt is moving up but stock is going the other way... sit up and take notice... if stocks moved down on heavy vol.. be alert.. cut first and think later.. :D
"If a speculator is correct half of the time, he is hitting a good average. Even 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

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Jesse Livermore

Postby millionairemind » Fri Aug 08, 2008 4:10 pm

Excerpts from the book..

1) Don’t lose money.

Don’t lose your stake. A speculator without cash is like a store-owner with no inventory. Cash is your inventory, your lifeline, and your best friend. Without cash, you are out of business. Don’t lose your line.
There is no place in speculating for hoping, for guessing, for fear, for greed, for emotions. The tape tells the truth.

2) Always establish a stop.

A successful speculator must set a firm stop before making a trade and must never sustain a loss of more than 10 percent of invested capital.
I have also learned that when your broker calls you and tells you he needs more money for a margin requirement on a stock that is declining, tell him to sell out the position. When you buy a stock at 50 and it goes to 45, do not buy more in order to average out your price. The stock has not done what you predicted; that is enough of an indication that your judgment was wrong. Take your losses quickly and get out.
Remember, never meet a margin call, and never average losses.
Many times I would close out a position before suffering a 10 percent loss. I did this simply because the stock was not acting right from the start. Often my instincts would whisper to me:J.L., this stock has a malaise, it is a lagging dullard. It just does not feel right, and I would sell out of my position in the blink of an eye.

I absolutely believe that price movement patterns are repeated and appear over and over with slight variations. This is because humans drive the stocks, and human nature never changes.

Take your losses quickly. Easy to say, but hard to do.

3) Keep cash in reserve.


The successful speculator must always have cash in reserve for exactly the right moment. There is a never-ending stream of opportunities in the stock market and, if you miss a good opportunity, wait a little while, be patient, and another one will come along. Don’t reach for a trade, all the conditions for a good trade must be on your side. Remember, you do not have to be in the market all the time.

The desire to always be in the game is one of the speculator’s greatest hazards.
When playing the stock market, there are times when your money should be waiting on the sidelines in cash waiting to come into play. Time is not money “ time is time, and money is money.

Often money that is just sitting can later be moved into the right situation at the right time and make a fast fortune. Patience is the key to success, not speed. Time is a cunning speculator’s best friend if it is used wisely.

4) Let the position ride.

As long as the stock is behaving normally, do not be in a hurry to take a profit. You must know you are right in your basic judgment, or you would have no profit at all. If there is nothing basically negative, then let it ride. It may grow into a very large profit. As long as the action of the overall market and the stock do not give you cause to worry, have the courage of your convictions, and stay with it.
When I was in a profit on a trade, I was never nervous.

Of course the opposite is true as well. If I bought a stock and it went against me I would sell it immediately. You can’t stop and try to figure out why a stock is going in the wrong direction. The fact is that it is going in the wrong direction, and that is enough evidence for an experienced speculator to close the trade.
I do not and never have blindly bought and held a stock.

To buy and hold blindly on the basis that a stock is in great company or a strong industry, or that the economy is generally healthy, is, to me the equivalent of stock market suicide.

Stick with the winners. Let them ride until you have a clear reason to sell.

5) Take the profits in cash.

I recommend parking 50 percent of the profits from a successful trade, especially when the trade doubled the original capital. Set the money aside, put it in the bank, hold it in reserve, or lock it up in a safe-deposit box.
"If a speculator is correct half of the time, he is hitting a good average. Even 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

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Jesse Livermore

Postby millionairemind » Sat Aug 09, 2008 8:56 pm

Those who like to have a soft copy of Reminiscences of a Stock Operator...

http://www.trading-naked.com/library/je ... ermore.pdf

First published in 1923, Reminiscences is a fictionalized account of the life of the trader Jesse Livermore under the name Larry Livingston.

The book tells the story of Livermore's progression to day trading in the then so-called New England "bucket shops", from there to market speculator, market maker, and market manipulator, and finally to Wall Street where he made and lost his fortune several times over. Along the way, Livermore learns many lessons, which he happily shares with the reader. Despite the book's age, it continues to offer insights into the art of trading and speculation.

In Jack Schwagers Market Wizards, Reminiscences was quoted as a major source of stock trading learning material for experienced and new traders by many of the traders who Schwager interviewed.
"If a speculator is correct half of the time, he is hitting a good average. Even 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

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Jesse Livermore

Postby millionairemind » Thu Aug 14, 2008 7:36 pm

From JL:

"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, you hope that every day will be the last day - and you lose more than you should had you not listened to hope - to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little.

"Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does."

Livermore himself had noted that what ultimately defeated most traders was their inability to stick to their own proven trading rules. Usually hope or fear brought them down. Hope caused traders to increase their losses by holding on to losing positions for too long, hoping the trade would become profitable. Fear caused traders to decrease their profits by selling winning positions too soon, fearful the market would turn and their winning positions would turn into losers.

mm comments - Bull markets allow for stupid mistakes to be made, like averaging down and still come out OK at the end.. Bull markets make the village idiot feel proud... "see ma, so easy to make money in the market".

Bull markets also make investors complacent..Aiya, just average down lah, it will sure come back up... this works in 2006/2007... but all it takes is one good old bear market to wipe out all the gains that one has accummulated in 3-4 years of bull market... as one keeps insisting on averaging down....

Be careful... all the great traders have always mentioned one thing, CUT YOUR LOSSES SHORT and RIDE YOUR WINNERS.

I know that is difficult to always cut your losses cos' the human ego wants to feel right and vindicated..

How do you know you are wrong? Simple, your account is showing you a loss... Never ever let a small loss turn into a HUGE LOSS that you cannot recover and come back to play... remember, a 10% loss needs a return of 11% to break even, a 33% loss needs a 50% gain to break even and a 50% loss, 100% gain to break even...

The market does not care if you need the money for your retirement, your son's college tuition or your wedding next month. It is merciless...The only defense you have against it is to cut all your losses short..

Please be careful out there.
"If a speculator is correct half of the time, he is hitting a good average. Even 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

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Jesse Livermore

Postby millionairemind » Mon Aug 18, 2008 10:28 am

JL:
The Action of the Market Should be Reason Enough
“If you wait until you have the reason given, you will have missed the opportunity of acting at the proper time!

“The only reason an investor or speculator should ever want to have pointed out to him is the action of the market itself.

“Whenever the market does not act right or in the way it should - that is reason enough for you to change your opinion and change it immediately.

“Remember: there is always a reason for a stock acting the way it does.

“But also remember: the chances are that you will not become acquainted with that reason until some time in the future, when it is too late to act on it profitably.”

mm comments - if a stock that you own all of a sudden falls on high volume while the market is moving up... sell without hesitation. Some groups of ppe. holding a big chunk of the stocks knows something you don't and they are getting out. Go check out the chart for Cosco and you will understand what I mean :)
"If a speculator is correct half of the time, he is hitting a good average. Even 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

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Jesse Livermore

Postby -dol- » Mon Aug 18, 2008 10:50 am

MM,

This is excellent revision for me - I like your comments.

Keep it up!
It's not the bottom if you are not crying.

Disclaimer: This is not investment advice! Please do your own research and due diligence.
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Re: Jesse Livermore

Postby Cherry » Mon Aug 18, 2008 1:38 pm

MM

Many, many thanks for the excellent lesson.

Illustrating the concept with a recent happening, Cosco's steep fall in share price and hefty increase in daily trading volume, helps me to understand and relate the concept to a live situation.

Pei fu ni, pei fu ni.

Looking forward to more eye-opening lessons.
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Re: Jesse Livermore

Postby millionairemind » Mon Aug 18, 2008 2:30 pm

dol - Glad that you find the JL's postings useful. He said he took 5 years to finally learn the art of speculation. He is the BOMB :green:

He is my shifu... so much to learn from the market.. I am still a greenhorn...

Cherry - I am just a simple guy... who tries to lose less money in the market :lol:

I have a stake in Cosco 3 weeks back... when it was around 3.10.. The fall to $2.95 with high volume in one day alerted me that something was wrong.. and hence I decided to cut out and posted in the forum for ppe. who are vested to be careful on the same day.

Fundamentally, I don't think Cosco has any major issues (based on the reports and annoucements thus far). However, the market thinks otherwise and so it is better to stand with the market than against it.

It is now 2.13 this afternoon.

I guess i am just lucky lah.. :D
"If a speculator is correct half of the time, he is hitting a good average. Even 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

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Jesse Livermore

Postby millionairemind » Tue Aug 19, 2008 3:21 pm

"There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!"


I have warned against averaging losses. That is a most common practice. Great numbers of people will buy a stock, let us say at 50, and two or three days later if they can buy it at 47 they are seized with the urge to average down by buying another hundred shares, making a price of 48.5 on all.

Having bought at 50 and being concerned over a three-point loss on a hundred shares, what rhyme or reason is there in adding another hundred shares and having the worry double when the price hits 44? At that point there would be a $600 loss on the first hundred shares and a $300 loss on the second hundred shares.

If one is to apply such an unsound principle, he should keep on averaging by buying two hundred shares at 44, then four hundred at 41, eight hundred at 38, sixteen hundred at 35, thirty-two hundred at 32, sixty-four hundred at 29 and so on.

How many speculators could stand such pressure?

So, at the risk of repetition and preaching, let me urge you to avoid averaging down… Why send good money after bad? Keep that good money for another day. Risk it on something more attractive than an obviously losing deal.


The Market Tells Traders When They Are Wrong
The market will tell the speculator when he is wrong, because he is losing money. When he first realized he is wrong is the time to clear out, take his losses, try to keep smiling, study the record to determine the cause of his error, and await the next big opportunity. It is the net result over a period of time in which he is interested.
"If a speculator is correct half of the time, he is hitting a good average. Even 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

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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