Lessons from Jesse Livermore

Jesse Livermore, the enigmatic and legendary stock trader of the early 20th century, remains a towering figure in the world of finance. His uncanny ability to read the market and his spectacular rises and falls have been the subject of fascination and study for generations of traders. Distilled from his own writings and the celebrated book "Reminiscences of a Stock Operator" by Edwin Lefèvre, Livermore's wisdom offers timeless insights into the art of speculation, the psychology of trading, and the unforgiving nature of the market.

On Market Philosophy and Human Nature

"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." [1] This foundational belief underscores Livermore's conviction that market movements are driven by human emotions, which are timeless and predictable.
"Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes." [2]
"Markets are never wrong – opinions often are." [1][3] A trader must learn to respect the market's verdict, as it is the final arbiter.
"The human side of every person is the greatest enemy of the average investor or speculator." [4][5] Emotional control is paramount to success in the markets.
"The game of speculation is the most uniformly fascinating game in the world." [2]
"They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side." [6][7]
"It is not good to be too curious about all the reasons behind price movements." [4][5] The price action itself is the most important piece of information.
"A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don't believe in tips." [8][9] Success relies on independent thought and analysis.
"Few people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket." [3][4]
"The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity." [7]

On Trading Strategy and Execution

"It never was my thinking that made the big money for me. It always was my sitting." [8][10] The real profits come from having the patience to hold a winning position.
"Money is made by sitting, not trading." [2][3] This emphasizes the importance of patience over constant activity.
"Trade only when the market is clearly bullish or bearish." [1] Avoid trading in choppy or unclear markets.
"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." [2]
"Buy rising stocks and sell falling stocks." [1] Trade in the direction of the prevailing trend.
"The real money made in speculating has been in commitments showing in profit right from the start." [4][5] A correctly initiated trade will often show a profit immediately.
"As long as a stock is acting right, and the market is right, do not be in a hurry to take profits." [4][5] Let your winners run.
"If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole." [4][5] Focus on the market leaders.
"The leaders of today may not be the leaders of two years from now." [4][11] Be aware that market leadership changes over time.
"I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction." [11] This describes his strategy of buying into strength.
"A stock is never too high to buy and never too low to short." [1] The price level alone is not a sufficient reason to enter or exit a trade.
"There is a time to go long, a time to go short, and a time to go fishing." [2] Recognizing when to stay out of the market is a skill in itself.
"Do not trade every day of every year." [1] Opportunities are not present at all times.
"Co-ordinate your trading activity with pivot points." [1][12] These are key price levels that can signal a change in trend.
"Big movements take time to develop." [5][11] Have the patience to wait for major trends to unfold.
"It is much easier to watch a few than many." [4][5] Focus your attention on a manageable number of stocks.

On Risk Management and Cutting Losses

"Never average losses." [1][3] Adding to a losing position is a cardinal sin in trading.
"Cut your losses quickly, without hesitation. Don't waste time." [13] The first loss is often the smallest.
"A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss, that is what does the damage to the pocketbook and to the soul." [8][13]
"Profits always take care of themselves but losses never do." [13][14] You must actively manage your losing trades.
"Never buy a stock because it has had a big decline from its previous high." [4][5] A fallen stock can always fall further.
"Never sell a stock because it seems high-priced." [4][5] A stock that appears expensive can continue to rise.
"Don't become an involuntary investor by holding onto stocks whose price has fallen." [1]
"One should never permit speculative ventures to run into investments." [4][5] Do not hold a losing trade with the hope that it will eventually recover.
"I have proposed my 10% rule—if my loss in a trade exceeds 10%, I immediately liquidate." [15] A strict rule for cutting losses.
"Never meet a margin call – get out of the trade." [1] A margin call is a clear sign that you are on the wrong side of the market.
"Don't lose your money -- don't lose your capital, don't lose your credit line. Traders without money are like shopkeepers without goods." [16][17] Capital preservation is the primary goal.

On Psychology and Discipline

"Emotional control is the most essential factor in playing the market." [14]
"Wishful thinking must be banished." [4][5] Trade based on what the market is doing, not what you hope it will do.
"A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets." [14]
"I never argue with the tape. Getting sore at the market doesn't get you anywhere." [8][13]
"Instead of hoping he must fear; 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." [14] Reverse your natural impulses.
"The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street." [7][8]
"Set your own rules and stick to them." [13][14] Discipline is key to long-term success.
"What beat me was not having brains enough to stick to my own game." [8][13] Deviating from a proven strategy leads to failure.
"There is nothing like losing all you have in the world for teaching you what not to do." [8] Learn from your mistakes.
"Courage in a speculator is merely confidence to act on the decision of his mind." [8]
"The market didn't beat me. I beat myself." [10] Acknowledging that failure often stems from personal shortcomings.
"I never buy at the bottom and I always sell too soon." [2][14] It is not necessary to capture the entire move to be profitable.
"All a person needs to do is observe what the market is telling him and evaluate it." [13][14] The market provides all the necessary information.

Learn more:

Lessons from Jesse Livermore

On Market Philosophy and Human Nature

On Trading Strategy and Execution

On Risk Management and Cutting Losses

On Psychology and Discipline

Written by Antoine Buteau

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