Trading Rules of Jesse Livermore
Words of Wisdom from One of the World's Greatest Traders
Mar 9, 2009
Jesse Lauriston Livermore (1877 — 1940) was considered arguably the greatest short-term trader of all time. However, he was famed was making and losing fortunes.
He lost a lot of money in the market crash of 1907. Years later, in 1929, he noticed similar market conditions to 1907 and began shorting various stocks. He added to his positions as prices kept declining. Following the Wall Street crash, Livermore was worth $100 million.
In 1934, through unknown mechanisms, he yet again lost much of his trading capital that he accumulated through 1929. The bankrupt Livermore was automatically suspended as a member of the Chicago Board of Trade.
Livermore’s Trading Rules
Livermore's rules for trading were sound and have always sparked interest in the trading community. The following rules are excerpted from the book, Reminiscence of a Stock Trader by Edwin LeFevre.
- Of all the speculative blunders, there are few greater than trying to average a losing game.
- Always sell what shows you a loss and keep what shows you a profit.
- You cannot try to force the market into giving you something it does not have to give.
- The courage in a speculator is merely the confidence to act on the decision of his mind
- A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.
- The man who is right has two forces working in his favor – basic conditions and the men who are wrong.
- The trend is evident to a man who has an open mind and reasonably clear sight. It is never wise for a speculator to fit his facts to his theories.
- In a narrow market when price moves within a narrow range, the thing to do is to watch the market, read the tape to determine the limits of prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction.
- You watch the market with one objective: to determine the direction of price tendency. Prices, like everything else, move along the line of least resistance.
- In the long run, commodity prices are governed but by one law – the economic law of supply and demand.
- It costs me one million to learn that a dangerous enemy to a trader is his susceptibility to the urging of magnetic personality combined with a brilliant mind.
- Have a profit – forget it! Have a loss forget it even quicker!
- It was never my thinking that made the big money for me. It was my sitting, my sitting tight.
- There is only one side to the stock market and it is not the bull side or the bear side, but the right side.
Livermore Studied His Own Mistakes
Jesse Livermore studied his mistakes objectively…”the only way you get a real education in the mark is to invest cash, track your trade, and study your mistakes! It is emotionally difficult to review your mistakes, since the speculator must wade through his own bad trades and blunders”…
The reader may be interested in Livermore's three main trading rules that a trader needs to develop in order to trade successfully.
References:
- “Fibonacci Ratios with Pattern Recognition”, Rules in Appendix IV. Larry Pesavento. Traders Press Inc, Greenville, SC. 1997.
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