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Readers reviews of JESSE LIVERMOORE
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This is a book written by a trader for traders. Read it with a pen in your hand for there are many sections you will want to highlight.


There are many nuggets of trading information in this book. The major rules are summarized in the last chapter, but it is foolish to just read these. It is how these rules are applied in context that provides the essential information about Livermore’s success, and provides a guide to ways we can improve our own trading.


Livermore’s life is interesting, but most readers will pick up this book with an eye to learning more about how Livermore achieved his success and the system or approach he used for trading.


Livermore started with bucket shops. They did not actually trade stocks. They offered what we would now call derivatives, but without any leverage. This forced the trader to buy and sell the momentum of the stock without actually owning the stock.  Decisions were made based on the tape, or the course of trades information.


When Livermore was eventually forced to trade via a broker he found the tape lagged the market by minutes. Additionally there were time delays in placing orders and getting them filled. The difference was enough to cause him to rapidly lose his first fortune.


The methods he used to trade via the floor are longer term trend trades. He did not use charts, but his memory for numbers provided him with the same type of information. He traded in a way that we now associate with chartists. He believed that all information was contained in price, and that all that counted in making a decision was price and its behavior. He did not use fundamental information except in the very broadest sense. Livermore learnt only to be interested in the change in price and not the reason for the change. He literally locked himself away in a room where he was protected from news and tips. He simply watched the price movements and from those he constructed a mental map, or chart, of market and stock activity.


Like all successful traders, he realized that trading success comes from two features. The first is strict stop loss control and the discipline to act on these signals. The second is money management, particularly the protection of capital and its allocation to developing positions. The book looks at these aspects in more detail.


His trend trading success rested in what he called probing the market. This meant buying small positions in anticipation of a trend change – and selling them quickly if they turned to a loss. This constant probing is reflected in modern Turtle Trading strategies. It is reflected in the application of the Count Back Line and the Grow-Up strategy that matches position size with our shift from hope, to confidence and then to certainty.
Many of the methods used by Livermore are now common practice. They are applied in parts, or in varied combinations. The buy sector strength strategy underpinned Livermore’s later trading successes. To this he added the concept of focus, tracking just a handful of stocks and ignoring the fleeting opportunities in others.


Livermore’s methods remain as valid and relevant today as they were in his time.

 

 

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