Jesse Livermore: What is the edge and what is the plan?

 

Trade only on pivotal points. Always made money when patient and traded on pivotal points. Reversal pivotal points almost always accompanied by a heavy increase in volume with 100-500% increases in daily volume and usually occur after long trending moves, why patience so necessary. Would send out probes and also in respective industry group, continuation pivotal point confirms and chance to add to position. Don’t chase if above 5-10%, missed the reversal, would rather pay higher for continuation pivotal point as confirmation. Biggest movement occurs in the last two weeks and also for commodities, so must wait and be alert for the clues. Danger signal when high of day is higher than high of previous day but close is below the close of the previous day and volume of current day is higher than volume of previous day. If sit with it during the rise must have the courage to do the ‘right thing’, acknowledge the signal and pull the trigger. Always transact at the right time, not low or high… Will allows us to accomplish our goals, not our intellect- will to suffer hard work and incredible persistence leads to attainment of the impossible, no shortcuts… The individual, not the group that led to the great discoveries in humanity, technology, medicines, politics, fortunes etc… Placed NYT, WSJ and London times on seats every morning to study in dark silence… What people do, not what they said they were going to do… Some people wanted to see the chaos, JL wanted to stay untouched by these human reactions… No talking during market hours, wanted no distractions while market was open… Can die financially in a heartbeat…No one knew better how fast things could change in the market… Remembered the prices… Tape tells everything if smart enough to read it, must fight fear and greed… Tape life of its own, its verdict final… Kept numerical diary in secret and discussed with no one, certain recurring numerical patterns emerged… Had no time to waste rationalizing the action of a stock, could be a million reasons, by the time reasons understood the change is already a historical event… Majority of people lost money, no plan, just gambling… Either control greed and fear or they control you… Always learn and thereby profit from mistakes, no arguing with the tape, tape is always is right, players are wrong… Win when all factors in favor, when patient and all ducks line up in a row, thus no one can profitably trade the market all the time (Baruch too)… 10% rule (but took quick losses if didn’t feel right)… Answer always out there, must figure it out… Get the facts, make a judgment, act IN TIME before it’s too late… Always false clues, bad conditions etc… Quest in analysis to find out why he made or lost money… Nothing changes in market except for players, pockets and memories… 1901 looked for big break, severe correction and then rally (had it right but went bust b/c of timing) then back to small gains/chops…  Have to lose b/c teaches what not to do, if you do again then no hope… Always evaluate and appraise general conditions and determine line of least resistance, up down or sideways, if trend not in your favor then at extreme disadvantage... To anticipate the market is to gamble, to be patient and react when the market gives the signal is to speculate... Imperative not to sell until good reason, and if general trend with you than have to let it play out… Novices, second grade suckers (42months), third grade who buy at the bottom, don’t be the sucker (said still was)… Pivot points for the big swings, where real money is made… Bad news in a bull market takes a lot longer to sink in… Did no trading for three days as watched stock (UNP)... Follow only own method despite best intentions of others… Concentrated on basic conditions before picking a stock and follow line of least resistance… The best are good money managers... Not whether the market or stock would turn, but WHEN it turned, TIMING EVERYTHING… Send out probes, position size determined beforehand, go 60% on 20,20,20 and then wait for further move and correction… If moved against would be patient and wait or close out… Only side to avoid is wrong side… Speculator proved wrong if stock moves against you, must admit it quickly and close the trade…. Big money in big swings and in waiting for basic trend to play out, and ride it before the inevitable change in basic trend seen in line of least resistance… 1) Decide on overall direction, 2) Develop buying strategy 3) Be patient and wait for the facts and the big move to play out… Examined factors carefully and decided market was cresting even though line of least resistance still appeared upward and slowly increased positions on each failed rally… Been wiped out many times by not closing out positions but close out only when reason other than fearful of losing profits… After thousands of trades and hundreds of hours examining trading techniques, knew he was right in that big money made in the big swings, although clipping points served well in building stake… Advanced from gamble to true speculator who looked ahead, evaluated general conditions and moved prudently, testing first and then plunging ONLY when convinced all factors in favor and essential secret of success was the hard work of never ending analysis… Worked every night on sheets of long column paper looking for trends, patterns and timing mechanisms… Quiet and secretive… If choose to take up speculating for a living it has to be studied intelligently and worked twice as hard as any other profession… When good luck came in unpredicted windfall, would take it and not wait for more good luck… Only time ever really lost money was when broke rules… Interested in only what tape told him, market does what wanted, not what expected… “If know something about stock, don’t tell me”… Could deal with failure, not success…38 filed bankruptcy… If a lil ahead of time you’re an eccentric, a lil late failure, if you hit it right on the head you’re a genius (Tom Watson- IBM founder)… Stocks react positively when cross par 100,200,300… Six long weeks studying tape, analyzing every trade as it crossed the ticker… He knew his biggest enemy was own emotions… Work hard to avoid emotional flaws… Like bear markets, bull markets do not last forever… When leaders start to top out and roll over, first signal for bear market… Don’t change precipitously in either direction, give plenty of signals, clues if can read objectively… Coffee trade was right but regulators got him… If stock languished after break in price in sideways channel, would probably keep going down but watched for deciding move before acting… No end to the learning process, game never over and could never know enough or get lucky enough to beat the market all the time… Market student who occasionally traded correctly… Ability to see what is happening without emotion, make observations others don’t and a good memory to remember facts correctly, particularly mathematic facts… Only speculate if can make it a full time job, don’t take tips and don’t try to catch tops or bottoms, is fools play… Take losses quickly and don’t brood, learn from them as inevitable as death, and ONLY make a big move when the majority of facts in your favor… Don’t try to play all the time, can’t be done, too hard on the emotions, made biggest moves and profits b/c had some cash sitting in reserve… Always be thinking, figuring percentages and probabilities… Industry group movements critical from both sides… Trade market leader, not the bargain and not always conventional leader, sometimes smaller well-manages stock assumes leadership with new product and knocks out the old one… Leading groups of one market most likely not leading group of next major market, followed only leading groups b/c if couldn’t make money there than won’t make… As favored groups got weaker and collapsed it usually meant correction in the market as a whole… Also used group action in commodities… Bed at ten and up no later than 6 for quiet, solitary strategy time… Hope, ignorance, greed, fear distort reason… People always move en masse b/c want company, where it gets complicated b/c want to trade line of least resistance, but detect when the change in trend starts to disappear to separate from popular thinking… Whenever detected change and wasn’t sure when, cashed in positions and waited. Is the change in trends that hurts most speculators, so use probes to test… Factors which marked the end of a major market move was heavy volume with stalled prices where leading stocks don’t make new highs… Always look for heavy volume in either individual stock, commodity or market… Not uncommon for stocks to suddenly spike in a straight shot with heavy volume and then stop, roll and retreat never to make a new high before onslaught of major correction… Always have wind at back, keep it out of face and when sideways market hits get out, go fishing… Staying out always difficult but is essential to not only wait for all factors but to seek emotional balance which is most critical… No windows in new office… On desk in/out baskets, pad and pencil and nothing else… Would beware of deep price fluctuation… People paint tape to get light volume stocks going… Liked sleepy stocks he could wake up (either way-lba?), still had to be on line of least resistance though… Wise trader knew that waited until a bottom firmly established before buying… True new high is when stock broke through overhead supply of stock… Action with leading stocks which change with every market… Never goes up or down forever but when changes direction, it remains in that new trend until it is stopped…Crash happens every 20-30 years, length of financial memory and length of time for new set of suckers to come in and imagine they have a wonderful fix on the future…Winter of 1928 until early spring was a full-fledged bull in a runaway bull market, but was looking for the change. Made a list of leading stocks that thought were overextended as line of least resistance went from up to sideways, correction of upward spike or change? Experience and extinct said the top, but TIMING was everything, not whether the top coming, but when… Commodities were dropping to secular lows and first shorts were right but then wrong and covered, then did again and they held. Everyone was bullish and things couldn’t have been better… Leaders were struggling, but public arrived in full force, barbers, shoe-clerks doc’s, etc…  Must play by rules for life amid constant study b/c never entirely figure them out…