The sage advice of Jesse Livermore

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How Did Jesse Livermore Trade?

For one check out this link.

Jesse used to work as a 14 year old kid in the tape reading rooms for a living. He would track the bids and asks on all the tapes and over time he started to notice patterns in the prices that were predictable. As he started noticing these patterns he developed a set of rules listed below that he followed for the rest of his life.

Here are the stock trading rules that made Jesse Livermore’s one of the world’s greatest fortunes. Many successful stock and commodity traders still base their methods on these 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.

These rules he followed are used by many professionals even today. He started with $100 or so and as he started trading he turned it into $1000. He ended up quitting his job and trading full-time because he was earning more than what his boss’s were paying him. He ended up being worth about 100,000,000 in those days. In today’s worth, that would be the billions.

To assess Jesse’s fortune more scientifically, the measuring worth calculator gave the following results for today’s value of $100 million in 1929:

$1.26 billion using the Consumer Price Index
$1.02 billion using the GDP deflator
$2.27 billion using the value of consumer bundle
$3.97 billion using the unskilled wage
$5.51 billion using the nominal GDP per capita
$13.7 billion using the relative share of GDP

The key I believe is that he followed his strategy to a tee and refused to deviate from his rules. He actually lost all his money at one point after breaking his rules, that is where he learned to stick by them. He was a resilient man. His lifestyle wasn’t to shabby after he had attained his riches.

In terms of the lifestyle Livermore’s wealth bought, Patricia Livermore, Jesse Livermore’s daughter-in-law gave a fascinating interview in 1990 for a documentary about the crash of 1929. Here’s part of what she said about the Livermore lifestyle:

“They had a beautiful place on 76th Street in Manhattan on the West Side, off Central Park. They had a floor at 813 Fifth Avenue because Dorothea did not like to go to the West Side to change her clothes. They had a house in Great Neck. They had a summer house in Lake Placid. They had a house in Palm Beach. They had a private railroad car, two yachts. The only yacht that was bigger was J. P. Morgan’s. And they used one of them, the big one, very frequently when they went to Europe. They lived very comfortably…

Jesse Livermore had a ticker tape in every home that he owned, on his railway cars, on his yachts… They had several Rolls Royces, lots of chauffeurs. They had a staff of about 20 or 25 and in each place, in each house, see, and with the exception of Dorothea’s personal maid, they did not take their staffs with them. They simply kept them year-round in all their establishments…

Oh, they lived. They really lived… Mrs. Livermore was a spender. And, of course, she loved to buy. She spent her days buying and buying and buying…”

So all this to say that the one of the world’s greatest traders has a lot of lessons to learn from. But first and foremost God provides these sort of blessings. In order to be able to do such a thing, you must conquer several things, greed, fear, human behaviors that can psychologically disable your trading. So… I hope you enjoyed this article and to end this week with a great week of trading, we will finish with a quote from Jesse Livermore himself.

On Odds

“But I can tell you after the market began to go my way I felt for the first time in my life that I had allies – the strongest and truest in the world; underlying conditions.”

On Charting Basics

“If a stock doesn’t act right don’t touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.”