Friday, October 26, 2012

Jesse Livermore: The Greatest Stock Market Wizard?


“Trading is a skill. You were not born a great trader.” - Mike Bellafiore

Jesse Livermore lived from July 1877 until November 1940. He made (and also lost) millions of dollars of fortunes by going short when the markets crashed in 1907 and 1929. In 1907, he went short when he noticed a bearish trend in the market. As a result of this, he made three million dollars. He later gave away ninety per cent of that fortune because of some bad trading styles. This made him fell into debt. Later, he regained his fortune during the Second World War, and began to live an affluent life. In 1929, he saw price patterns and fundamental developments that were like the ones that occurred in 1907. Almost everybody lost their portfolios as the markets crashed that year, but Jesse ultimately made one hundred million dollars because he went short during the crash. Unfortunately, his personal life was filled with divorces, eventual failures in the markets, and lost fortunes. Sadly enough, he ended his own life by committing suicide. 

Jesse Livermore is considered by many speculators as the greatest trader that has ever walked on this planet. He blazed unique trails in the trading world. His valid and winning principles have been explained in details in some books that were published about him.

In spite of his success and failure, we can learn good lessons Jesse:

A.        The majority aren’t always right. So, don’t be afraid to be different. Jesse Livermore made fortunes because he followed the line of the least resistance, i.e. he followed the flow of the markets. The markets were crashing, but many people were holding onto their long positions. That was suicidal. Holding your positions against the trends while hoping that the markets would turn in your favor is definitely not a good thing.

B.        Jesse couldn’t safeguard his fortunes, but we can do that. If he knew this and followed it, he mightn’t have lost those fortunes. There are effective risk control principles that can guarantee our everlasting success in the markets. However, this is another topic in my future articles.

C.        Was Jesse really the greatest stock market wizard? To me, I think the greatest thing a trader can do is to focus on losing as little money as possible. We’ll always give back part of our profits, but we want to give back as little as possible. Those who suffer minor roll-downs find it easy to recover when the markets become favorable.

Conclusion: There are no problems in the markets. There are no problems with trading portfolios. The problems lie with traders and investors. You need to be versatile in the markets. You need to know the principles that can guarantee the permanent safety of your capital in the markets. You must get proper education. If you’ve bad trading styles, they’d ruin your prospects prior to the time you really move ahead. The key is to speculate on what the markets are showing instead of what you want the markets to show. Really, pecuniary gain isn’t the most important thing, since it comes when it isn’t thought of as much.”

This article is ended by quotes from Jesse:

1.         "As I said before, a man does not have to marry one side of the market until death do them part.”

2.         "The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to… It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!" 

Azeez Mustapha

Market Analyst, Trading Signals Provider and Coach

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