Jesse Livermore is an icon on Wall Street and his methods in the stock market were revolutionary. Throughout his career he made and lost fortunes; including a $100 million profit by being short going into the great crash of 1929, this cemented his nickname as the Boy Plunger. Sadly, in 1940 Livermore took his own life. Although tragic, this event is something we can learn from by analysing Livermore's life and methods in detail.
Before discussing the 10 lessons it is important to have a basic understanding of Livermore's trading methods. His method was focused upon identifying pivot points in price for individual stocks. When a stock crossed what Livermore determined to be the pivot point, both for going long or short, Livermore would act decisively. Livermore categorised pivot points into 3 types: 1) breakout; 2) reversal; and 3) continuation.
When in an open position Livermore shares many key lessons on controlling our own psychology and not being prey to basic human emotions. As Livermore said himself "the human side to every person is the greatest enemy of the average investors or speculator". Livermore's methods of when to enter a stock, and dealing with our own emotions, are applicable to speculators/investors of all time frames.
#1 - "There is nothing new in Wall Street, there can't be because speculation is as old as the hills. Whatever happens in the Stock Market today has happened before and will happen again."
People move markets. The emotions of a speculator 100 years ago are the same as today; hope, greed, fear etc. Livermore was able to identify repeatable patterns of behaviour and profit greatly.
#2 - "Trade only when the market is clearly bullish or bearish"
Livermore understood that when speculating it is a game of probabilities not certainties. Therefore, he would only trade in the direction of the market when the direction was clear - i.e., going short when the general market trend was bearish. By doing so he further stacked the probabilities of a successful outcome on his side. Another key lesson not listed here of Livermore's was patience. Patience to stay with a trade, but also patience to sit on the sidelines in cash when the market is dull/inactive (trending sideways).
#3 - "Only enter a trade after the action of the market confirms your opinion and then enter promptly"
This ties…
