Habits, Rules and Processes of Successful Traders

Jesse Livermore was a legendary trader and many people have written and blogged about him. Once in March 2010, while reading some of the books on him and by him I made few notes and now thought of sharing them. So here they are – I have used first person to indicate what he wrote or believed:

  • The idea is to get out fast when a trade goes against me
  • Keep notes on all trades that explain why I bought or sold short and why I closed the positions
  • Review every trade and refer to the notes. Figure out why did I lose on certain trades
  • Close all positions at the end of the year and start trading again later (maybe February)
  • The game of speculation is not for stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer
  • The fruits of your success will be in the direct proportion to the honest and sincerity of your own effort in keeping your own records, doing your own thinking and reaching your own conclusions
  • There are times when one should speculate and just as surely there are times when one should not speculate
  • To invest or speculate successfully, one must form an opinion as to what the next move of importance will be in a given stock
  • The good speculator always waits and has patience – waiting for the market to confirm his judgment
  • Don’t back your judgment until the action of the market itself confirms your opinion
  • Markets are never wrong – opinions often are
  • Experience has shown me that the real money made in the speculation has been: “In the commitments in a stock or commodity that showed profits right from the start”
  • When you inject hope and fear into the business of speculation you are faced with a very formidable hazard because you are apt to get two confused and in reverse positions
  • As long as a trade is acting right and the market is acting right, do not be in a hurry to take a profit
  • Have the courage of your conviction and stay with it
  • Profit always takes care of themselves but losses never do
  • If my stock does not act as I anticipated, I immediately determine the time is not yet ripe – so I close out commitment
  • Never make a second trade if the first trade shows a loss
  • One of the primary “Don’ts” is – one should never permit speculative ventures to run into investments
  • I absolutely believe that price movement patterns are being repeated; they are recurring pattern that appear over and over, with slight variation. This is because the stocks were being driven by humans – and human nature never changes
  • There is always the temptation in the stock market, after a period of success to become careless or excessively ambitious
  • The speculation itself is a business and should be so viewed by all. Do not permit yourself to be influenced by excitement, flattery or temptation
  • Whenever I had the nerve and patience to wait for the signal, it invariably did that
  • It cannot be said too often that in speculation and investment, success comes only to those who work for it
  • I have often said that to buy in a rising market is the most comfortable way of buying stocks
  • The point is not so much as to buy as cheap as possible or go short at top prices, but to buy or sell at the right time

The above notes are from the books How To Trade in Stocks by Jesse Livermore and Reminiscences of a Stock Operator by Edwin Lefevre.

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