Lessons From Jesse Livermore – One of History’s Trading Greats

Reminiscences of a Stock Operator, one of the most popular trading books of all time, is based on the life of Jesse Livermore who was born in 1877. He made $100 million in the great crash of 1929, which depending on the gauge you use, is about $1.5 to $2.3 billion in today’s dollars. Jesse also wrote a book called How to Trade in Stocks, outlining his main methods of trading. Here some famous quotes from Jesse, with additional commentary when applicable.

“A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does damage to the pocketbook and the soul.”

Most traders view a loss as something bad. But if you take a trade you are supposed to based on your system, and that trade simply doesn’t work out, you have done the right thing. Win or lose, you only do the wrong thing when you don’t follow your plan.

“The professional concerns himself with doing the right thing rather than making money, knowing that the profit takes care of itself if the other things are attended to.”

Assuming you have created a trading plan and have developed precise strategies to trade, all you have to do is follow your plan. That is the right thing to do, and is the only thing that will produce consistent results.

“The game taught me the game.”

While you can learn from others and seek help, eventually trading becomes a solitary endeavor. Only you can make the trades, deciding when to exit and enter. All the knowledge in the world is useless if you never learn to implement your strategies with real money and in live market conditions. The game schools you into learning the game, and you must learn, or the dream ends.

“I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgement.”

To become a true trader, independent and not reliant on others, you need to forge your own path. Someone else’s trade signals or tips may not align with your personality, methodologies or risk tolerance, causing you grief. Most importantly, if you rely on someone else, you are never really learning to trade, and when you have to trade on your own at some point, you won’t have the skills necessary to do so.

“My plan of trading was sound enough and won oftener that it lost. If I had stuck to it, I’d be right perhaps 7 out of 10 times.”

Don’t lose your flock going after one sheep. Many new traders have a decent system, whether they bought it, read about it or created it. If it wins 6 or 7 times out of 10, or even less than that if you make more on your average winner than your average loser, that is a winning system and you can be very successful with it. But amateurs always try to reduce the number of losses they take, and thus destroy the profitability of the overall system. Trust a winning system to do what it does: make a profit! It will do so even with the losses; the losses are already factored in, you don’t need to get rid of them or change a thing.

“It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!”

Anyone can make big money on a few trades. That’s called luck, not skill. Skill is being able to not only make money, but not lose it when conditions change. Skilled traders wait for opportunities, opportunities that their systems dictate. When conditions are uncertain, don’t trade. Don’t lose what you have already made. Instead, wait for only good opportunities so you can add to your capital, instead of drawing it down.

Final Word

Despite the advent of computerized trading and the ability to trade online with instant information and quotes, markets have not fundamentally changed since the times of Jesse Livermore. Markets will always rise and fall, and most will lose money. This won’t change, because while individuals can change and separate themselves from the herd, the group as a whole doesn’t change; they are driven by primal emotions which left unchecked will destroy any chance of success in the markets. Follow a plan; see that as the only right thing to do. It is the only way to beat the game and become one apart from the herd.

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