Via Minyanville, we get this good version of Jesse Livermore’s trading rules, considered to be one of the best traders of all time:
Lesson Number One: Cut your losses quickly.
As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.
Lesson Number Two: Confirm your judgment before going all in.
Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.
There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade – never when it goes against you.
Lesson Number Three: Watch leading stocks for the best action.
Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser's game.
Lesson Number Four: Let profits ride until price action dictates otherwise.
“It never was my thinking that made the big money for me. It always was my sitting.”
One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position.
Lesson Number Five: Buy all-time new highs.
The psychological merits of buying all-time or 52-week highs are immense and shouldn’t be discounted as a part of your overall strategy.
Lesson Number Six: Use pivot points to determine trends.
When going long, traders are continually looking for confirmation by assessing the strength of a move. Higher highs and higher lows are a solid indicator that a current uptrend is merely taking a slight pause, and the odds of higher prices are in their favor. These same pivot points are integral to drawing support and resistance lines to give traders their line in the sand. Taken together, trend lines and pivot points can enlighten a trader to a change in momentum, which may change the character of a trade.
Lesson Number Seven: Control your emotions.
Our goal as traders should be to also make a critical yet honest assessment of the areas we can improve so the bottom line will support our claims of truly being seasoned traders. Adhering to the time-tested rules of Jesse Livermore would be a great start for anyone.
The full article is here.
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Source: Seven Trading Lessons from a Legend Quint Tatro Minyanville, OCT 29, 2009 2:15 PM
http://www.minyanville.com/articles/index.php?a=25187
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
OT – It’s the jobs, stupid! I see the C bailout is reaping dividends! DETROIT — Chrysler Group LLC confirmed Saturday about 23,000 hourly workers will receive buyout offers as the auto maker continues trimming jobs amid planned plant closures and falling product demand.
Employees have until Nov. 13 to accept the offer, Chrysler said in a statement. Special programs are also being offered at factories that are being closed as part of the bankruptcy process. The dates for those programs vary.
Separation dates are at the discretion of the company.
The buyouts come as Chrysler prepares to reveal its five-year product plan to the public during a press conference at its Auburn Hills, Mich.-based headquarters Wednesday. Chief Executive Officer Sergio Marchionne is expected to address how Chrysler will survive while it attempts to deliver new products to the market.
More can kicking. What inning is this game? Federal bank regulators issued guidelines allowing banks to keep loans on their books as “performing” even if the value of the underlying properties have fallen below the loan amount.
The volume of troubled commercial real-estate loans is skyrocketing. Regulators said that the rules were designed to encourage banks to restructure problem commercial mortgages with borrowers rather than foreclose on them. But the move has prompted criticism that regulators are simply prolonging the financial crisis by not forcing borrowers and lenders to confront, rather than delay, inevitable problems.
BR,
these types of Posts are really worthwhile. they show, w/minimal reflection required, how much BS is shoveled, to ‘the typical “investor”‘, by the WireHouses/MSM..
as ex. MutFund ‘di-’-vestors should wonder why they’re paying such large Fees for the Huge Turnover that the ‘avg. fund’ exhibits.. i.e. http://finance.yahoo.com/q/pr?s=FMAGX 0.13% avg ann. ret. (5 yr.) ~~ past that, to extend on Lesson Two, I’m still not sure why more peep don’t fade Puts to initiate ‘Long’ positions..
if your entry point is Correct, one has the Premium to discount additional Longs, if it isn’t, you have the Premium, as margin for error, to cover the position–shorting the underlying..
it’s odd that most people think ABS has something to do with ‘anti-lock’ brakes, rather than ‘Always Be Selling’..it’s easier to Harvest what’s, already, there..yes, read: Option Selling. http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=selling+Optiions+maximizes+Portfolio+returns
US pumping more into GMAC while CIT goes under with $2.3B taxpayer loss. There’s still no rhyme or reason to these bailouts. I think the CIT failure could have a langer than expected impact on small businesses and employment, ya know…
http://online.wsj.com/article/SB125689890371418331.html?mod=WSJ_hps_LEFTWhatsNews http://online.wsj.com/article/SB125668489932511683.html
jc,
re: “More can kicking. What inning is this game?”
this version of the Sport is going to make Cricket look like a Jai-alai Match.. http://www.cricketworld.com/ http://www.jai-alai.info/
jc,
re: “There's still no rhyme or reason to these bailouts.”
if you want to rip another hole into what’s left of U.S. independent businesses (CIT BK), and cover-up ~50+ years of grave sins, of all stripe (GM/ChryCo Bailouts)..
you may find the lyrics for this Season of Treason..
Help is on the way.Time for a new broom at CNBC, bring in some adults. http://online.wsj.com/article/SB10001424052748704746304574505800428175562.html?mod=WSJ_hps_LEFTWhatsNews
Good advice, if you can stick to it. Jesse was not so strong on #7, control your emotions. In 1940 he committed suicide in the Sherry Netherland Hotel in NYC.
Livermore sure is a legend, Reminiscences of a Stock Operator is a great read.
He shorted the market in1929, not much is known in the 30s. By 1938 or so, he was broke and he put a gun to his head. Livermore went boom and bust many times, made millions and lost millions when millions were huge.
Lesson #8 survive the cycles
hue,
no doubt, great book.
I think thought, the lesson, knowing Livermore’s history, is to in fact follow your own rule-book.
In this case #’s 1 and 7 apply.
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