More Trading Rules of Jesse Livermore

The Way to Trade by One of the World's Greatest Traders

Mar 9, 2009 Harry P. Schlanger

Jesse Livermore was an extraordinary short-term market trader. He is known for having made and lost many fortunes trading. Here are more of his rules...

A previous article briefly described Jesse Livermore as a trader who made and lost several fortunes in his trading career. However, after the 1929 stock market crash, he was worth some $100 million dollars (about $1 billion in today’s money).

Livermore's rules for trading were considered sound and always sparked interest in the trading community. The following are more interesting trading rules excerpted from the book, “Reminiscence of a Stock Trader” by Edwin LeFevre.

Livermore’s Main Trading Rules

There are three rules a trader needs to develop in order to trade successfully:

1. Build a foundation of trust in yourself so that you will act in your own best interests – without hesitation.
2. Follow a set of steps that will build confidence and a belief in your own consistency. This includes learning to not give your money away.
3. Execute your trades flawlessly when a signal is given. Ask yourself these questions: a) Is it an identifiable pattern? b) Are the secret ratios present? c) Can I afford to take the risk? If the answer to each of these three questions is “yes!” then you should take the trade.

Additional Trading Factors to Consider

Keep in mind these important factors:

• Money Management always takes precedence over any trading methodology. You must never expose yourself to unlimited risk. Stops are placed for protection against yourself.
• Never get into a trade where the risk is unknown
• The mistake is not being wrong; the mistake is in staying wrong!
• Fear causes us to narrow our focus of attention and distorts our perception of the environment.
• Self-discipline is the ability of maintaining your focus of attention when all the things in the environment are in conflict.
• Never let the market save you – you must save yourself. Use stops!
• We deal in probabilities! The market is always greater than anything we can ever anticipate. No methodology of trading can tell you what is going to happen next. Profits come from a string of trades and not from one particular trade.
• Take care of hour losses and the profits will take care of themselves! Release yourself from being wrong or the fear of losing money. Trading is not a game of right or wrong, it is the process of making money.
• Be rigid in your rules and flexible with your observations.

Livermore’s Legacy

Jesse Livermore has left a record of his precious philosophies about how he was able to make so much money trading the futures markets. He died prematurely, committing suicide, apparently from his own loss of confidence in trading. The mechanisms on how his trading brought about his downfall are not known; therefore this mystery is part of the Jesse Livermore legacy.

References:

1. “Fibonacci Ratios with Pattern Recognition”, Rules in Appendix IV. Larry Pesavento. Traders Press Inc, Greenville, SC. 1997.

The copyright of the article More Trading Rules of Jesse Livermore in Investment is owned by Harry P. Schlanger. Permission to republish More Trading Rules of Jesse Livermore in print or online must be granted by the author in writing.

Jesse Livermore

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