Livermore’s Wisdom, Pt. 1: The Art of Trading
Jesse Livermore was one of the most successful traders in history. He made and lost fortunes several times over, but his insights into the market and human behavior remain relevant today. In this article, we’ll explore some of Livermore’s wisdom and how it can be applied to trading.
1. The trend is your friend
Livermore believed that the trend was the most important factor in trading. He said, “The trend is your friend until it bends.” In other words, if a stock is going up, it’s more likely to continue going up than to suddenly reverse course. This doesn’t mean you should blindly follow the trend, but it does mean you should be aware of it and use it to your advantage.
2. Cut your losses
Livermore was a firm believer in cutting losses quickly. He said, “The only thing to do when a trade goes against you is to get out.” This means that if a stock starts to go down, you should sell it before it gets too low. It’s better to take a small loss than to hold onto a losing position and hope it will turn around.
3. Let your profits run
On the flip side, Livermore also believed in letting your profits run. He said, “It never was my thinking that made the big money for me. It always was my sitting.” This means that once a stock starts to go up, you should hold onto it and let it continue to rise. Don’t sell too soon and miss out on potential gains.
4. Don’t be greedy
Livermore knew that greed could be a trader’s downfall. He said, “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals.” This means that you shouldn’t make trades just for the sake of making trades. You should only make trades when the conditions are right and the potential for profit is high.
5. Be patient
Finally, Livermore believed in the power of patience. He said, “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” This means that trading requires discipline and patience. You can’t expect to get rich overnight, and you can’t make impulsive decisions based on emotions.
In conclusion, Jesse Livermore’s wisdom is still relevant today. By following his advice to pay attention to the trend, cut your losses, let your profits run, avoid greed, and be patient, you can increase your chances of success in the market. Stay tuned for part two of Livermore’s wisdom, where we’ll explore his thoughts on risk management and psychology.