While most people tend to think of Reminiscences of a Stock Operator when Jesse Livermore is discussed, he actually wrote his own book How to Trade in Stocks shortly before his death in 1940. This is a treasure trove of wisdom that, in my opinion, every trader should read. While not all elements of his particular trading method may suit everyone, the basic principles he talks about are most certainly relevant, and have influenced my own trading:
"I hope this does not offend the reader but the general public is usually not successful in trading their own accounts. The general public will sit for a five point gain and a ten point loss. They will assume that this is nothing but a normal reaction and they will sit through this drop. 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.
Why? It's simple, the stock did not do what I expected it to do, therefore my judgement was wrong, never mind "Why" it was wrong - the fact is that it "Was" wrong so I must get out of the position."
"It may sound contradictory, but it isn't, there are times when I am out of the market completely with all my working capital in cash, waiting and waiting for the market to choose a trend and for the perfect trading scenario to present itself to me. For a key to the market is to always have that cash reserve that you can call into action, like a general holding his final army in reserve, waiting to commit it to battle at the perfect moment to ensure victory."
"Stick with the winners - as long as the stock is acting right - do not be in a hurry to take a profit. You must know you are right in your basic judgement, or you would have no profit at all. If there is nothing basically negative - well then - Let it ride! It may grow into a very large profit, as long as the action of the overall market and the stock does not give you cause to worry, let it ride - have the courage of your convictions. Stay with it!"
"Once in the green I was totally relaxed and just observed the stock's movements in total calm and did nothing until it was time to close the trade. The possibility of losing my "paper profits" never bothered me, since it was not my money to begin with."
"There are times when playing the stock market that your money should be inactive - waiting on the sidelines in cash - waiting to come into play - in the stock market - time is not money - time is time - and money is money.
"Often money that is just sitting can later be moved into the right situation at the right time and make a vast fortune - patience - patience - patience is the key to success not speed - time is a cunning speculator's best friend if he uses it right."