Sunday, February 10, 2013

Some words of wisdom from Jesse Livermore

Jesse Livermore always evokes a great deal of discussion in trading circles. Depending on who or what you have read or have spoken to, he is either the great trader in history or someone with the worst risk control. He made (and lost) millions before taking his own life in 1940.

As a legacy, what he did leave behind was the basics of his method - the biography believed to be based on Livermore, Reminiscences of a Stock Operator should be read by every trader keen to improve, as it is the source of a lot of the truisms and famous trading quotes. In addition, Livermore himself wrote How to trade in Stocks which provides further timeless advice as well as more detailed notes on his method and his Market Key Theory. Reading this classic trading literature can provide a spark of an idea, or a different way of thinking which may help you improve your trading performance.

The following quotes from his writings are only the tip of the iceberg:

"I have found that well-defined trends do not last for extended periods of time. When people ask me for a tip I say the market is currently in an 'Upward trend' or a 'Downward trend' or a 'Sideways trend' - or I tell them that the 'line of least resistance' is currently up or down, as the case may be...and that is all I say.

This leaves me with the flexibility to change my mind, according to the market behaviour. I never to to 'PREDICT' or 'ANTICIPATE' the market. I only try to 'REACT' to what the market is trying to tell me."

"...I am one of the few speculators who has never cared in which direction a stock is going. I simply go with the 'line of least resistance'. For me, it is simply a 'market play', the direction of the stock is not important."

"We all make mistakes and we will continue to make mistakes in our lives and in the stock market! The rewards can be enormous if we can learn to 'cut the losses quickly and let the profits ride' - do not sell a stock unless you have a good reason - just simply wanting to take the profit is usually not a good enough reason."

"In the beginning of a trade I watch the stock as closely as possible, because I have hopefully waited to buy it on a breakout. If it does not breakout or in fact goes in the opposite direction, then I will immediately get out of the stock".

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