Jesse Livermore Book Teaches Market Analysis and Trading

Jesse Livermore's book is a treasure trove of market analysis and trading strategies. It's a must-read for anyone looking to improve their trading skills.

Livermore's book is a compilation of his experiences and insights from his time as a professional trader. He shares his observations on market trends and his approach to making informed trading decisions.

One key takeaway from Livermore's book is the importance of understanding market psychology. He emphasizes the need to stay calm and objective, even in the face of market volatility.

Livermore's approach to market analysis involves identifying key price levels and patterns, which he calls "price action." He believed that by studying price action, traders could gain a deeper understanding of market sentiment and make more informed trading decisions.

Livermore's approach to managing losses is centered around cutting them short. He believes in letting profits ride, but not losses. This mindset is essential for traders who want to minimize their risk and maximize their returns.

Livermore's reluctance to rely on charts is a key part of his strategy. He keeps records of his trades instead, which allows him to track the "Time Element" and make more informed decisions.

In Jesse Livermore's book, he emphasizes the importance of market analysis in making informed investment decisions. According to Livermore, the key to successful trading is to understand the underlying forces driving the market.

Livermore notes that the stock market is a reflection of human psychology, with prices influenced by emotions and sentiment. He advises traders to focus on the fundamentals and ignore the noise.

Livermore's approach to market analysis involves identifying trends and patterns in the market data. He suggests that traders should look for areas of support and resistance, where the market is likely to change direction.

The Dow Theory, which Livermore follows, is a method of market analysis that involves tracking the performance of the Dow Jones Industrial Average. According to the theory, when the averages are diverging, it's a sign that the market is becoming overbought or oversold.

Livermore also emphasizes the importance of technical analysis in identifying potential trading opportunities. He suggests that traders should use charts and other tools to identify patterns and trends in the market data.

In his book, Livermore provides several examples of successful trades that he made using his market analysis techniques. These examples illustrate the power of his approach and provide valuable insights for traders.

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Livermore stresses the importance of position sizing, a method he used to call "Pyramiding". He bought 300 shares of a stock at 100, then allocated 100 shares at 105 and the remaining 100 shares at 110.

This approach allowed him to gauge his judgment about the stock's trend and make adjustments accordingly. He also emphasizes the need to stay away from insider information or tips, as they can be misleading.

Livermore's friend got a tip to buy a stock, which initially performed well, but later reversed sharply. The tipster misinformed the trader, highlighting the importance of relying on charts or record keeping rather than tips.

Livermore's most notable trades were in Wheat and Rye, where he made significant profits by identifying pivotal points and using position sizing. He bought Wheat in lots, waiting for it to cross the next pivotal point before placing the next buy order.

Livermore's experience also highlights the importance of not getting attached to profits and exiting trades prematurely. He realized his mistake in Wheat and learned to let go of his emotions.

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Jesse Livermore's life and times are a fascinating subject, and two of his works offer a unique glimpse into his experiences. These two books, presented together in one volume, contain interesting insights into Livermore's life as a speculator.

The first book, Reminiscences of a Stock Operator, is a first-person narrative of a fictional speculator named Larry Livingston, whose life events match those of Jesse Livermore. Edwin Lef vre, the author, wrote eight other books, but none matched the success of Reminiscences, which has remained in print since 1923 and been translated into numerous languages.

Livermore's success was not without its controversies, and he was known to use tactics that some might consider questionable. He was nicknamed the "Great Bear of Wall Street" and was not above manipulating markets to his advantage.

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The game of speculation is not for the faint of heart. It requires mental toughness and a strong personality to withstand the ups and downs of the market.

Livermore advises us to treat speculation as a business, not a gamble. Keeping a record of trades and studying them periodically can help determine success and failure rates.

Speculation should not be pursued by those with a get-rich-quick mentality or emotionally weak individuals, as it can lead to financial ruin.

The Pivotal Points are a key concept in Jesse Livermore's trading strategy. These points are discovered through record-keeping of stock price movements in a notebook.

Livermore believed that certain levels, such as round numbers or relative points like 52-week highs or lows, can define the trend of a stock. He would start a position only when the stock reached a pivotal point and increase his position as it moved in his desired direction.

A pivotal point can be a psychological price point or a relative point. For example, if a stock has been declining and reaches a low point of 40, it may then make a rapid run-up to 45, back down for a week, and then continue to extend its run-up to 49.

Livermore's strategy was to sell a stock below its pivotal point by three points or more before it had another significant bounce if it truly intended to resume its downward trend. If it failed to break through the pivotal point, he would purchase the stock when it recovered three points from the low price reached during the reaction.

Livermore's trading strategy is summarized as "Timing, Money Management, and Emotional Control". He emphasizes the importance of paying close attention to the market and heeding danger signals if the stock does not perform as expected after crossing a pivotal point.

Livermore's broker played a crucial role in executing his trades effectively, especially in the past when brokers had more control over placing orders. He recalls that his broker halted his order for Rye, allowing him to cover his shorts at a better price and making an extra profit of $350,000.

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Livermore stresses the importance of position sizing, warning against putting in the entire stipulated amount at once.

Most traders make the mistake of investing their entire budget when a stock breaches a pivotal point, but the trick is to allocate the amount as the stock moves in your direction.

A stock trading at 100 requires a more strategic approach, where you buy 300 shares at 100, 100 shares at 105, and the remaining 100 shares at 110.

This method, known as "Pyramiding", was used by Rakesh Jhunjhunwala in his trading.

Study your book of price records and the price movements of the past few weeks to identify the Pivotal Point.

When your chosen stock reaches the Pivotal Point, that's the time to make your first commitment, deciding the amount of money you're willing to risk.

Consistency is key, and re-entering the market whenever your Pivotal Point is reached increases your chances of being in when the real move occurs.

The author warns against relying on insider information or tips, as they can be misleading and based on self-interest.

A friend of Livermore's got a tip to buy a stock, but the tipster later misrepresented the situation to keep their own interests safe.

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Do you remember Livermore stating Danger Signals as an exit point? He used a specific signal called 'One Day Reversal', which occurs when the current day's high is higher than the previous day's high, the current day's close is lower than the previous day's close, and the current day's volume is higher than the previous day's volume.

This signal is a big red flag to stop the trade immediately. Livermore also emphasized that if there's significant volume but prices stagnate, don't rise, don't reach new highs, and there's not a strong continuation of the current advance, it's often a warning that the stock may have peaked out.

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Focus on a few stocks that you can understand, rather than trying to trade a large number of stocks. It's much easier to track a few than many.

Livermore advises looking at a group of stocks from different sectors to form a perception about the market. This approach helps you stay focused and avoid getting overwhelmed.

Trade in leaders or high market cap stocks, which are the most active and provide ample liquidity in case of a trend reversal. This is because leaders are often the most influential in shaping market trends.

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Timing is everything in trading stocks, and Livermore's strategy for timing trades is based on identifying a stock's pivotal point, also known as a resistance point. This is the point where the stock's price action becomes more volatile and unpredictable.

To determine the pivotal point, you need to study the stock's price movements over a period of time, looking for patterns and trends. Livermore suggests looking at the price records of the past few weeks to identify the pivotal point. Once you've identified the pivotal point, you can start making trades.

The key is to be patient and wait for the stock to cross the pivotal point before making a trade. Livermore advises against making a full commitment at the beginning of the uptrend, but rather to allocate your funds as the stock moves in your direction. This is known as "pyramiding", and it allows you to see if your judgment about the stock's trend is correct.

Here's an example of how pyramiding works:

By breaking up your trades into smaller commitments, you can avoid making a large loss if the stock's trend reverses. Livermore also emphasizes the importance of not getting attached to your profits and being willing to exit a trade prematurely if the stock's trend changes.

In addition to pyramiding, Livermore's strategy for timing trades also involves being aware of warning signs that the stock's trend is about to reverse. One such warning sign is a sudden and sharp increase in the stock's price, followed by a break in the final hour of trading. If you see this happening, it's a good idea to take a side track and move out of the trade.

Livermore's experience with Wheat and Rye in 1924 is a good example of how timing trades can lead to huge profits. By identifying the pivotal point and making trades as the stock moved in his direction, he was able to make a three million dollar profit.

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Emotional control is crucial for successful stock trading. Livermore, a disciplined man, went to bed by 10 PM and rose at 6 AM to have time for new information. A good trader needs to be both mentally and physically fit.

You can't afford to be careless in trading, so it's essential to be aware of everything and ignorant of nothing. Livermore's rules for keeping emotions under control in trading are simple yet effective. He advises to never be invested in the market all the time and to be in cash when unsure of the market direction.

Livermore also used pyramiding as a tool to allocate capital to a trade. This means starting with a small allocation and sizing up the trade as the stock moves in your direction.

The three important characteristics of practicing emotional discipline are poise, patience, and silence. A balanced person with dignity of manner, patience, and keeping your victories and failures to yourself are key to managing emotions in trading.

Here are the three important characteristics of practicing emotional discipline:

By following these principles, you can develop the emotional control necessary for successful trading.