A New Year is always a good time to reflect on the events of the past and look to the future. Every year I analyze my trading history and find out where I can improve. I also look for new ideas from others, and one of my favorite sources is the book Reminiscences of a Stock Operator by Edwin Lefevre. It tells the true life story of Jesse Livermore, a stock operator who was successful in trading bucket shops and brokers at the turn of the 20th century. He was ahead of his time and made millions trade on the emotions of others.

I pull out this book frequently to review its timeless lessons in trading, psychology, and risk management. Below is a great round-up of Stock Confidential, which features quotes from Livermore that are as valid today as they were 100 years ago. I hope you enjoy this piece as much as I do.

They don’t make stick gurus like THIS anymore!

Why should one mention an “old school” dealer from the turn of the 20th century? Because his theories about trading breakout stocks are still used by some of the best traders, including myself. You and I can still learn a lot from a man who didn’t have access to today’s technologically advanced trading tools and still managed to make $ 3 million in a single day. (How many dealers do you know who can make $ 3 million in a year?) This was the accomplishment of 30-year-old Jesse Livermore.

1907 seems so distant to us in these days of streaming quotes, charting software, and computerized trading. But that is exactly what makes Jesse Livermore’s successes in stock trading so impressive today.

As revolutionary as this early stock guru’s approach to trading was for his time, the truth of the matter was Jesse’s “secrets” of trading stocks were just solid, solid foundations. Its success is proof that the further we get away from trading breakout stocks and a simple, disciplined approach to trading stocks, the less successful we will be. How unconventional was Jesse Livermore? Look here:

  • He believed in trading stocks of the highest quality, not stocks with “weaker sisters”.
  • A stock making new highs was a signal of a stock’s strength for Livermore and meant that the stock had broken its overhead supply to sellers. Today we call this a “breakout stock”.
  • He was one of the first stock traders to realize that stocks in industry groups don’t move in isolation.
  • Unlike today’s self-proclaimed stick-pick gurus, Jesse Livermore was a humble student of the market and never considered himself a master.

Livermore was always aware of the role his psychology played in stock trading success, so he never talked about what he did to anyone and was actually known for asking people to keep their stock tips to themselves! He was so protective of his trading psychology that he didn’t even use the words “bullish” or “bearish” and thought they generated an emotional mindset that he wanted to avoid.

Three of the rules he followed were:

  1. Decide on the general direction of the market while making sure of the general trend of the market.
  2. Research the market by trading small positions first rather than doing everything at once. and
  3. Exercise patience, let the movement of a stock play, paying attention to all the facts instead of the emotions.

Top trading ideas from Jesse Livermore

Here are just a few of the ideas from this legendary stock guru about trading breakout stocks in his own words:

“I am firmly convinced that price movement patterns repeat themselves and occur again and again with minor deviations. That’s because humans drive stocks and human nature never changes. “

“Keep the number of stocks you own at a controllable number.”

“Take your losses quickly and don’t brood over them. Try to learn from it, but mistakes are inevitable like death. “

“Only take a big step, a really big leap, when most of the factors are in your favor.”

“Never take a capital loss greater than 10%.”

“Keep the wind off your face, and when the market slips, get stuck, move sideways, get out, take a break, have fun, go fishing. Come back to the market when the wind is up and the sailing is clear and good. “

“Every now and then you have to earn money, take a break, go on vacation. Do not try to play in the market all the time. It can’t be made too hard on the emotions, there is nothing more important than your emotional balance. “

“Don’t take tips, no matter where they come from.”

“Don’t invest in the market all the time. There have been many times I’ve been completely cash especially when I wasn’t sure of the direction of the market and was waiting for confirmation of the next move. It is the change in the main trend that hurts most of the speculators. You will easily get caught investing in the wrong direction and on the wrong side of the market. “

“The stock market is the biggest, most complex puzzle ever invented, and it pays the biggest jackpot.”

Learn more about Jesse Livermore in this month’s webinar

Visit us on Thursday at 4:30 p.m. EST to continue the discussion and learn more about how you can use Jesse Livermore’s advice to increase your trading advantage. Here you can register.

This post was originally published on January 17, 2017.


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