Key points

● A successful trader should always learn three things: market timing, money management, and emotional control.

● always keeps in mind that half of the profits should be used as cash reserves.

● must wait until the market rises before it starts to buy, or when the market falls, it begins to short.

● must follow the leader, focusing on the leading stocks in the leading and strong industries

Jesse Livermore, a legendary figure on Wall Street in the 20th century, is widely acknowledged by both his followers and his archrival that Livermore is one of the most outstanding stock market traders in the world.

Livermore's stock operation strategy has been continuously improved and deepened over time, it can be said that operating stocks is his only real career. Livermore believes that successful traders must have certain qualities and that not everyone is fit to operate stocks. Foolishness, laziness, or emotional imbalance, especially those who want to get rich quickly, are not suitable for this line of work.

Livermore's trading secret can be summed up as follows: a successful trader should always learn three things: market timing, money management, and emotional control. The biggest problem that a speculator must control is his emotion, which is the most important factor in the market.

Legendary life

Livermore is an absolute speculative genius.

His first job was as a bookkeeper at a stockbroking firm in Boston, USA, with a salary of $1 a week. However, this background led him to sum up a set of speculative theory to speculate the future price based on the past price of the stock, so as to get the "first bucket of gold".

At the age of 20, Livermore accumulated a capital of $10,000 (a lot of money at the time), and his nickname "speculative boy" began.

However, as a speculator, Livermore's first major success came from the analysis of fundamentals, that is, the analysis of major trends in the market.

In 1907, while the stock market was still hot, he observed that the credit environment was tightening: listed companies were willing to sell new shares at very low prices to step up financing, stockbrokers were tight, many companies went bankrupt, and so on. He began to short the most active stocks in the market. Livermore's personal wealth peaked at $1 million in October as the stock market collapsed.

With the advent of the Great Depression in 1929, Livermore's personal wealth accumulated to $100 million by shorting the market, making him one of the richest people in the United States.

But his adventurous life was not always accompanied by good luck. In fact, corresponding to his ability to accumulate wealth quickly, he can also lose wealth quickly.

Livermore experienced four personal bankruptcies in his life, saw his wealth evaporate several times, and could hardly afford to buy a postcard.

In November 1940, his life came to a tragic end: after getting drunk in a restaurant in Manhattan, Livermore wrote an eight-page letter to his third wife saying, "my life is a failure." and then committed suicide in the hotel cloakroom.

Livermore's ups and downs in the investment process has something to do with his contradictory view of speculation. He had successfully grasped the general trend, but pinned his hope of profit on grasping the short-term fluctuations of the market; he often doubted secular judgment, but he could easily entrust huge amounts of money to "grapevine news"; his most famous investment motto was "cut losses, let profits run", but constantly increasing the stakes in the stop position led to bankruptcy; he viciously laughed at public delusions and collective madness, but could not help being caught in it.

In Livermore, almost every market participant's human weakness is reflected.

For this reason, learning from Livermore's trading will help investors to understand and overcome themselves more deeply.

Trading discipline

Keeping correct records in an honest manner, thinking on your own and making decisions on your own are all important disciplines that Livermore strictly adheres to.

Livermore extensively reviews all his operations, especially those that make a loss, which is one of his most persistent traits, and has deliberately developed this habit at the beginning of his career. Avoid repeating the same mistakes in the past and prevent further losses in the future.

Another discipline that Livermore strongly adhered to later in his career was to set aside half of his profits as cash reserves, which usually come from operations that double profits. With cash reserves, you will not go bankrupt and will be able to supply the necessary funds when market conditions reverse. Cash preparation gives him the capital to keep abreast of changes in market conditions and speculate and make a profit.

Another important lesson Livermore learned early on is that doing it every day or every week is a loser's game and won't be very successful. There are many opportunities to make a profit by operating stocks, but sometimes you should withdraw your hands and never operate. When the market lacks great opportunities, regular rest and vacations are healthy things in Livermore. This discipline forced him not to operate all the time. Sometimes retreating to the sidelines and being a bystander can see major changes better than observing small fluctuations day after day.

Livermore is always on high alert, studying the market and analyzing the price movements of the market and individual stocks. He is not only strict in operation, but also very strict in self-discipline, which has become a legendary story. For example, he studies behind closed doors at his residence every morning, usually an hour or two before breakfast. This quiet time alone, undisturbed, is very important to him. After a full night's rest, he found that he was very clear-headed when he did his homework in the morning. He can analyze the state of the economy, the news of the previous day, and then decide what appropriate action he believes should be taken, and how the market may react.

Livermore likes to be quiet, especially during working hours, and he doesn't allow conversation to disturb his mind. When he got to the office, he didn't allow his assistant to talk during working hours, and he stood up most of the day. This is done to see clearly the quotation, but also because he believes that the perfect upright posture can make him think more acutely. It is said that his desk is so clean that he can't even see a piece of paper, and it is in good order. Livermore is obviously very self-disciplined in operation in order to pursue the peak performance.

Six major trading strategies

Livermore's trading strategy has evolved over his years of stock trading experience, and some of the most important strategies can be summarized as follows:

first,Stock traders want to make a profit not by the ups and downs of the stock price, but by major fluctuations.In other words, it does not depend on the resolution of the market, but on the assessment of the entire market and market trends.

Second,The foundation of trading is to study the trend of the market as the core.Be sure to wait until the market goes up before you start buying, or when the market goes down, you start shorting. When the market is hesitant or fluctuating up and down, it is better to stay off the market. Wishful thinking must be completely eliminated. If you don't let go of every trading day and speculate every day, it will be impossible to succeed. There are only a few opportunities for Liao Ke every year, maybe only four or five times, and only these opportunities can be done.

Third,When preparing for stock operations, be sure to follow the leader.There is no need to consider the future of other stocks, the focus should be on those leading industries and strong industries in the leading stocks.One of the important characteristics of leading stocks is to break through the resistance area and take the lead in creating new highest prices.. To keep your mind flexible, remember that today's bellwether may not be the bellwether two years later, and the stock market is abandoning the old bellwether, with the new bellwether replacing the old bellwether. It makes sense that it is difficult for a bellwether in a previous bull market to become a bellwether in a new bull market, as changes in economic and business conditions will lead to new trading opportunities with greater expected profits.

FourthResolutely implement the stop-loss rules.Livermore capped his first loss at 10%. TrueThe only choice to keep speculative business going is to carefully guard your capital accountThe loss must not be allowed to be big enough to threaten the future operation, leaving the green mountains and not afraid of firewood.

FifthFirmly implement the upward pyramid buying principle.Stocks are never too high, so high that you can't start buying or too low to start selling. But after the first deal, don't make a second unless there is a profit on the first. 'If your first trade is already losing money, never follow up and never undersell your losing position, 'Mr. Livermore said. Be sure to engrave this idea deeply in your mind.Continue to buy more shares only when the stock price continues to rise.If it is a downward short, it will only increase all the way when the stock price is in line with the expected downward trend. Livermore likes to short stocks whose prices are at record lows.

SixthAvoid buying stocks at low prices.Large profits are made from large price fluctuations, which usually do not come from low-priced stocks.