|
How to Trade in Stocks
All successful stock and commodity traders have rules for buying and
selling. Many traders today still use the trading rules Jesse
Livermore first devised almost a century ago.
Jesse Livermore constructed his rules over several years while he
learned by trial and error what worked on the markets. He was guided
by one of his favorite principles:
"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."
 Trading Rules
Buy rising stocks and sell falling stocks.
Do not trade every day of every year. 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.
Co-ordinate your trading activity with pivot points.
Only enter a trade after the action of the market confirms your
opinion and then enter promptly.
Continue with trades that show you a profit, end trades that show a
loss.
End trades when it is clear that the trend you are profiting from is
over.
In any sector, trade the leading stock - the one showing the
strongest trend.
Never average losses by, for example, buying more of a stock that
has fallen.
Never meet a margin call - get out of the trade.
Go long when stocks reach a new high. Sell short when they reach a
new low.
 Other Useful Trading Guidance
Don't become an involuntary investor by holding onto stocks whose
price has fallen.
A stock is never too high to buy and never too low to short.
Markets are never wrong - opinions often are.
The highest profits are made in trades that show a profit right from
the start.
No trading rules will deliver a profit 100 percent of the time.
Jesse Livermore Quotes
When I'm bearish and I sell a
stock, each sale must be at a lower level than the previous sale.
When I am buying, the reverse is true. I must buy on a rising scale.
I don’t buy long stocks on a scale down, I buy on a scale up.
The market does not beat them. They beat themselves, because though
they have brains they cannot sit tight.
The price pattern reminds you that every movement of importance is
but a repetition of similar price movements, that just as soon as
you can familiarize yourself with the actions of the past, you will
be able to anticipate and act correctly and profitably upon
forthcoming movements.
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.
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.
Another lesson I learned early is
that 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.
I told you I had ten thousand dollars when I was twenty, and my
margin on that Sugar deal was over ten thousand. But I didn't always
win. My plan of trading was sound enough and won oftener than it
lost. If I had stuck to it I'd have been right perhaps as often as
seven out of ten times. In fact, I have always made money when I was
sure I was right before I began. What beat me was not having brains
enough to stick to my own game- that is, to play the market only
when I was satisfied that precedents favored my play. There is a
time for all things, but I didn't know it. And that is precisely
what beats so many men in Wall Street who are very far from being in
the main sucker class. There is the plain fool, who does the wrong
thing at all times everywhere, but there is the Wall Street fool,
who thinks he must trade all the time. No man can always have
adequate reasons for buying or selling stocks daily- or sufficient
knowledge to make his play an intelligent play.
It takes a man a long time to learn all the lessons of his mistakes.
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.
There is nothing like losing all you have in the world for teaching
you what not to do. And when you know what not to do in order not to
lose money, you begin to learn what to do in order to win. Did you
get that? You begin to learn!
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 the
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.
The reason is that a man may see straight and clearly and yet become
impatient or doubtful when the market takes its time about doing as
he figured it must do. That is why so many men in Wall Street, who
are not at all in the sucker class, not even in the third grade,
nevertheless lose money. The market does not beat them. They beat
themselves, because though they have brains they cannot sit tight.
Old Turkey was dead right in doing and saying what he did. He had
not only the courage of his convictions but the intelligent patience
to sit tight.
?the average man doesn't wish to be told that it is a bull or 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. It is too
much bother to have to count the money that he picks up from the
ground.
To tell you about the first of my million dollar mistakes I shall
have to go back to this time when I first became a millionaire,
right after the big break of October, 1907. As far as my trading
went, having a million merely meant more reserves. Money does not
give a trader more comfort, because, rich or poor, he can make
mistakes and it is never comfortable to be wrong. And when a
millionaire is right his money is merely one of his several
servants. Losing money is the least of my troubles. A loss never
bothers me after I take it. I forget it overnight. But being wrong-
not taking the loss- that is what does damage to the pocketbook and
to the soul.
What I have told you gives you the essence of my trading system as
based on studying the tape. I merely learn the way prices are most
probably going to move. I check up my own trading by additional
tests, to determine the psychological moment. I do that by watching
the way the price acts after I begin.
Of all speculative blunders there are few worse than trying to
average a losing game. My cotton deal proved it to the hilt a little
later. Always sell what shows you a loss and keep what shows you a
profit. That was so obviously the wise thing to do and was so well
known to me that even now I marvel at myself for doing the reverse.
The loss of the money didn't bother me. Whenever I have lost money
in the stock market I have always considered that I have learned
something; that if I have lost money I have gained experience, so
that the money really went for a tuition fee. A man has to have
experience and he has to pay for it.
In booms, which is when the public is in the market in the greatest
numbers, there is never any need of subtlety, so there is no sense
of wasting time discussing either manipulation or speculation during
such times; it would be like trying to find the difference in
raindrops that are falling synchronously on the same roof across the
street. 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.
People who look for easy money invariably pay for the privilege of
proving conclusively that it cannot be found on this sordid earth.
At first, when I listened to the accounts of old-time deals and
devices I used to think that people were more gullible in the 1860's
and 70's than in the 1900's. But I was sure to read in the
newspapers that very day or the next something about the latest
Ponzi or the bust-up of some bucketing broker and about the millions
of sucker money gone to join the silent majority of vanished
savings.
There are men whose gait is far quicker than the mob's. They are
bound to lead- no matter how much the mob changes.
|
