Jesse Livermore Trading Lessons

Jesse Livermore began his trading career at the age of 14. He did not begin as a trader, but was able to be around many of them. He kept track of quotes, posting them on a chalkboard for price speculators. The Paine Webber brokerage in Boston is where he began his career. After watching stock prices, noticing patterns, and having hunches for about a year, he decided to move. Keep in mind, he came from a farming family with no education in economics, business, or finance. He made his first trade with $5 from his savings and won.

At the age of 15, after trading for several months, he had made $1,000, which would be about $20,000 today. Up to this point, he was making his money at bucketshops, which were places built specifically to help speculators lose money. By the age of 21, he moved to New York with $2,500. He had just had a large drawdown from $10,000 of 75%. In the Big Apple, he proceeded to lost the rest of his account, and was forced to borrow money.

To continue, he knew he had to leave Wall Street and go back to the bucketshops. He then gained enough money to return to Wall Street just to lose it all again. He did this three more times before he became a success. In 1907, he had built his wealth up to $3 million. The majority of this was done through shorting the market.  He was so short that he was asked to stop shorting the market by a few well-known, well-connected individuals as it may threaten the financial stability of the country.

From the flat markets of 1908-1912, he lost all of his money; and even went into debt by $1 million dollars forcing him to declare bankruptcy. This downturn in profits all began with a failed cotton trade, which went against Livermore’s trading rules. however, the 1929 crash allowed him to slowly build up his stake again. He made $100 million, which would be worth billions in today’s value.

5 years later the SEC was created, which gave the markets a totally different character. The $100 million dollar fortune drifted lower and lower until his death. Afterwards, all of his trusts and assets gave him a net worth of $5 million dollars. He had lost $95 million dollars from his all time highs.

With a brief history of one of the best traders and speculators of all time, what are some of the crucial lessons we can learn from him?

1) Learning how to read price action was a crucial piece of his trading. The early days of his first year were spent watching, learning, observing, and remembering price moves. No indicators, no computer, no charts were looked at. Pure price data and price action were his tools. He could spot key levels where the market was going to move to, from, or above.

He did not expect to get rich quick or cut corners. Hard work and intense study were crucial to developing his skills. One of his most famous quotes is, “The game of speculation is the most fascinating game in the world. But it is not a game for the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer.  They will die poor.” Jesse Livermore constantly worked to improve his trading style, and put in endless hours of study. The initial trip to Wall Street had failed along with a few trips after that. It took several years of analysis and study of his system before the money flowed.

2) Resiliency Jesse Livermore went through several divorces, and actually asked his first wife to borrow money to keep trading. He traded in bucketshops where no protection existed for anyone. He also had the poorest execution for a long time losing his entire stake several dozen times. Yet he always returned to the game.

He studied harder, refined his system, learned from his losses, and made less mistakes. By getting more disciplined, eliminating most of his mistakes, and sticking to his trading plan he came back with more vigor each time. It takes resiliency to trade the markets: mental and physical. The best careers, not only in trading, are characterized by resiliency.

3) Focusing on Big Moves was Jesse Livermore’s modus operandi. Let your winners run and cut your losses he would always say. He was also one of the few people to make money in both the 1907 and 1929 crashes. He was not married to any particular bias, so by reading the price action he was able to find the best opportunities.

Patience was a trait he possessed in spades. He was able to wait for a trade, rather than over-trading. At certain points he would not even trade sometimes not trading for a year.

Jesse Livermore became a great trader and speculator by working on his skills. He built his skills, and continuously tested them for any possibilities of improvement. It is this diligence that made him successful. Jesse Livermore is someone I can read about and always find a new piece of information of which to learn from. Hopefully you will benefit from these timeless lessons. Comment below what you have learned from him.