Jesse Livermore fell off the cliff on a few occasions

“If you can’t sleep at night because of your stock market position, then you have gone too far. If this is the case, then sell your position down to the sleeping level.”

You need to feel comfortable with your trades. If you can’t sleep at night because of them, then don’t bet as much.


Summary:

  • The trader’s learning curve is long- but that’s the way to beat the crowd​
  • The market gives ambiguous signals- wait for confirmation
  • Don’t add to losing positions and don’t overtrade
  • Trade position sizes that you’re comfortable with



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This modern day trader turned thousands into millions. Click here to find out how.

Jesse Livermore’s trading strategy revolved around “pivot points.” Once the price of a security approached such a point, Livermore waited for market confirmation to back up his expectations before entering a trade. For example, if he expected a breakout at a certain price, he waited for it to actually happen. Even better if there was increased volume on the breakout. He also liked to add to winning positions.

Even though he was a great trader, he wasn’t perfect as he had lost his fortune more than once. Whenever he lost it, it was because he broke his trading rules (such as when he added to a losing position or followed the tips given by others). Eventually, Livermore committed suicide in 1940. At that time his fortune was estimated to be $5 million (more than $50 million in today’s money). 

Jesse Livermore’s Trading Quotes

Below are some of the best Jesse Livermore quotes and our commentary.

 
“It is literally true that millions come easier to a trader after he knows how to trade, than hundreds did in the days of his ignorance.”

                                              and

“It takes a man a long time to learn all the lessons of all his mistakes.”

It takes lots of learning to become a successful trader. Not only book learning, but learning by making mistakes. But mistakes cost money. There’s another way, though. Many online brokers now offer free demo accounts where traders can test their strategies with virtual money.

Once you become successful, it will become easier to make real money. Let’s say you make 10% on $1,000. That’s $100 profit. However, once you’re successful in growing your account and make 10% on $10,000, this will add to 10 times more money in profits even though in both cases 10% was made.


“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.”

If you’re willing to learn (including learning from your own mistakes) and do proper research before entering a trade, you’ll likely beat the lazy people. Many people don’t want to spend countless hours learning and researching. Instead, they want trading tips, or they trade on gut feelings. This leads to losses. To outsmart the crowd, put in the necessary efforts.


“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.” 

Impatience is the vice that leads many traders to lose money. Don’t trade until there’s a proper opportunity and where the risk you’re taking is smaller than the potential profit. You’ll need to have trading rules and strategies to follow in order to avoid the trap of overtrading. You’ll also need to learn how to manage your account so you never risk too much.


“The stock market is never obvious. It is designed to fool most of the people, most of the time.”


                                                        and

“Don't take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don't be an impatient trader.”

The market gives plenty of false signals. If you think the market, or a specific stock or commodity, will go certain way then be ready to jump in, but wait for confirmation. Often, it will come in the form of a breaking out of the range that is confirmed with more price action. If you’ll jump later once there’s confirmation, your probability for success should increase. Your potential profit will be smaller than if you had jumped in earlier, but as Jesse Livermore says, this is insurance money.
 

“I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. 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.”

These are some of the trades that cost Jesse a lot of money. He broke his rules. Get rid of you hopeless losers and keep your winners.


“Experience has proved to me that real money made in speculating has been in commitments in a stock or commodity showing a profit right from the start.”

                                                    and

“It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”

A good trade is usually profitable from the start. This means you entered it at a right time. Unsuccessful traders seek to recover from losses by buying more, hoping that then the price won’t need to rise as much for them to reach a breakeven point. That’s a way to compound losses.



“Never buy at the bottom, and always sell too soon.”

On a long trade, you shouldn’t buy at the bottom unless you see confirmation that the price began to recover. It would be nice to sell at the top, but you’re risking profits should the price start declining. If you have a profit and are not sure what to do, consider selling half of your position. This way you’ll take some money off the table and still be in the market with the rest of your position to participate in potential further rises.

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Great Traders: What Jesse Livermore Had to Say


​Jesse Livermore was born in Massachusetts in 1877. As a 15-year-old he started excelling in stock trading. He became famous for shorting stocks in 1929. When almost everyone lost money during the crash that year, Livermore had accumulated a fortune of $100 million, which is over $1 billion in today’s money.