Jesse Livermore was born in 1877 and by the age of fifteen, he was already working in a brokerage office. He’s one of the greatest stock traders in his lifetime and made millions of dollars trading his own money. He was so good that he was nicknamed the Great Bear of Wall Street and the Boy Wonder.
He based his trading on his key principle: “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.” There are several stock trading rules attributed to him. Most of them were quotes attributed to him in a book — Reminiscences of a Stock Operator — written about him in 1923 by Edwin Lefevre, a financial journalist.
Here are 10 of the most popular Jesse Livermore’s stock trading rules.
Buy rising stocks and sell falling stocks.
This also applies in other instruments such as currencies and commodities. You should only buy instruments that are rising and sell the ones that are going down. Don’t try to predict the turn of the market, follow the lead of the market.
Trade only when the market is clearly bullish or bearish.
“Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short.” You don’t have to trade every day. You should only trade when the market shows which direction it is headed. Wait for the market to be bullish to be bullish yourself and when it is bearish, to be bearish. No position is also a position too. Cash is a position. So get that into your mind. You don’t have to be in the market all the time. Always wait for the market to show clear signs of direction.
Co-ordinate your trading activity with pivot points.
You must note the important pivot points and levels in the market. When trading you should observe what price does around these important levels. These are supply and demand areas with a huge volume of pending orders plus, many traders are watching these levels too, ready to flood the market with orders if the price level acts the way they expect.
Enter into position only after Price Action Confirms your Opinion.
You can have an opinion of the market, but, you mustn’t act on it until the market confirms that opinion. Markets can never be wrong but your opinions can and will often be. Once the market confirms your setup, act immediately; you cannot afford to delay — to avoid late entry or missing the trade entirely.
Cut Losers and Let Winners Run.
Ride your profits and cut your losses. You can never hear enough of this maxim. You have heard it again from a legend.
Exit trades When The Trend is Showing Signs of Weakness.
Trends don’t last forever. When it is obvious that the trend is exhausted, close the trade and safeguard your profits.
In any sector, trade the leading stock – the one showing the strongest trend.
This applies to all instruments as well. If you trade forex, go for the pairs that are showing strong trends; same too for commodities, trade only the ones showing strong trends.
Never Average Losses.
If a trade goes against you, don’t add new trades with the hope of averaging the entry price. This will lead to a catastrophic loss. A lot of accounts have been blown by averaging losses.
Never Meet a Margin Call
If you ever get the dreaded call which you shouldn’t get in the first place if you had placed a stop loss order, don’t honor it. Just get out of the trade. “Don’t become an involuntary investor by holding onto stocks whose price has fallen”.
Go long when stocks reach a new high. Sell short when they reach a new low.
Don’t be afraid to buy higher or sell lower in a strong trending market. When the instrument you are trading breaks out of an old high/low and makes a new high/low, it is a sign of a strong trend. “A stock is never too high to buy and never too low to short”.
These rules were used by the legendary Jesse about 90 years ago but they still work till today. Though they were made for stock market trading, they also work for other instruments such as currencies and commodities. Study them, and see the ones you can apply to your trading arsenals. In this business, it always pays to learn from the wisdom of those that have gone before us. And remember, “No trading rules will deliver a profit 100 percent of the time”.
I am going to leave you with some of the more famous Jesse Livermore Trading Quotes here. Enjoy…
Jesse Livermore Quote 1:
“He really meant to tell them that the big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend.”
Jesse Livermore Quote 2:
“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
Jesse Livermore Quote 3:
“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.”
Jesse Livermore Quote 4:
“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.”
Jesse Livermore Quote 5:
“There is only one side to the stock market; and it is not the bull side or the bear side, but the right side”
Jesse Livermore Quote 6:
“The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.”
Jesse Livermore Quote 7:
“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.”
Jesse Livermore Quote 8:
“I can’t sleep” answered the nervous one.
“Why not?” asked the friend.
“I am carrying so much cotton that I can’t sleep thinking about. It is wearing me out. What can I do?”
“Sell down to the sleeping point”, answered the friend.
Jesse Livermore Quote 9:
“He will risk half his fortune in the stock market with less reflection that he devotes to the selection of a medium-priced automobile.”
Jesse Livermore Quote 10:
“On Pat Hearne – He made money in stocks, and that made people ask him for advice. He would never give any. If they asked him point-blank for his opinion about the wisdom of their commitments he used a favorite race-track maxim of his: “You can’t tell till you bet.””
Jesse Livermore Quote 11:
“I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up.”
Jesse Livermore Quote 12:
In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be. The thing to do is to watch the market, read the tape to determine the limits of the get nowhere prices, and make up your mind that you will not take an interest until the prices breaks through the limit in either direction.
Jesse Livermore Quote 13:
“I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”
Jesse Livermore Quote 14:
“Instead of hoping he must fear and instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.”
Jesse Livermore Quote 15:
“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.”
Jesse Livermore Quote 16:
“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”
Jesse Livermore Quote 17:
“If I buy stocks on Smith’s tip I must sell those same stocks on Smith’s tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around?
A man must believe in himself and his judgement if he expects to make a living at this game. That is why I don’t believe in tips.”
Jesse Livermore Quote 18:
“A man must study general conditions, to seize them so as to be able to anticipate probabilities.”
Jesse Livermore Quote 19:
“Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.”
Jesse Livermore Quote 20:
“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend.”
Jesse Livermore Quote 21:
“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.”
Jesse Livermore Quote 22:
“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.”
Jesse Livermore Quote 23:
“A prudent speculator never argues with the tape. Markets are never wrong, opinions often are.”
Jesse Livermore Quote 24:
“Professional traders have always had some system or other based upon their experience and governed either by their attitude towards speculation or by their desires.”
Jesse Livermore Quote 25:
“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.”
Jesse Livermore Quote 26:
“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.”
Jesse Livermore Quote 27:
“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth – or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.”
Jesse Livermore Quote 28:
“Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”
Jesse Livermore Quote 29:
“People who look for easy money invariable pay for the privilege of proving conclusively that it cannot be found on this earth.”
Jesse Livermore Quote 30:
“It is what people actually did in the stock market that counted – not what they said they were going to do.”
Other Analysis Today