Trading Lessons from Jesse Livermore

By | August 15, 2014

Jesse Livermore is known as one of the greatest traders who ever lived. During his lifetime he was a legend of Wall Street. In the 1920s, when the traffic lights were hand-operated by policemen on boxes, he would never stop for a red light. The moment they saw his car, the lights were green. (source: interview with his daughter in law, Patricia Livermore – The crash of 1929 documentary) Many traders interviewed by Jack Schwager in his Market Wizards books cite Livermore as being instrumental in their becoming winning traders.

One question that someone reading this might ask is: How relevant is it, in this day and age of HFT, CNBC, internet, to take lessons from a trader who was in his prime 90 years ago ? My answer ? More relevant than ever. Wall Street never really changes; yes, the stocks change, the currencies change (we have Euro now instead of Deutsche Mark, French Frank and a host of other european currencies), the players in the market change, but what’s behind all of it, the human nature, that never changes.

Jesse Livermore began developing his trading system in bucket-shops, upgraded it for trading on Wall Street, and continued to perfect it until the day he died. He  committed himself to years of study of the market and to learning from his own mistakes. His determination, perseverance, and constant self-evaluation offers an excellent model for all traders to follow.

  • “You can never go broke taking a profit” is poor advice that will result in cutting winners short.
  • One of the quickest ways to lose money in the market is to listen to others. To succeed, you must ignore all outside opinions and predictions and follow your own strategy.
  • Losses are tuition on Wall Street. Analyze and learn from them.
  • Profits always take care of themselves, but losses never do. The speculator has to insure himself against considerable losses by taking the first small loss.
  • Don’t concern yourself with why things are happening only observe what is happening. The reasons why will eventually be revealed to you, but by then it will be too late to make money. The move will be over.
  • The best speculators search only for the very best opportunities. To be truly successful, you must wait for the right opportunities to present themselves. There will be many times when you should be out of the market, sitting in cash, waiting patiently for the perfect trade.
  • Disregarding the big swing, trying to jump in and out can be fatal. No one can catch all the price fluctuations.
  • Successful trading doesn’t mean you have to be perfect. No one can buy at the bottom and sell at the top.
  • When the market is right, be aggressive by pyramiding up.
  • Never average losses. Why throw good money after bad ?
  • There are times when money can be made trading, but money cannot consistently be made trading every day or every week during the year.
  • To be consistently successful, a trader must have rules to guide him.
  • Do not have an interest in too many financial instruments at one time. It is much easier to watch a few than many, ten at the most—five is better. Definitely it is not safe to try to keep account of too many at one time. You will become entangled and confused.