In every field of human endeavor, there are always only a very few people who stand out and are extraordinary! Jesse Livermore is such a person. He is a lonely person, a silent and mysterious person; he is a genius in the field of speculation, a legend on Wall Street! Livermore started trading stocks at the age of 15, and was worth millions before he was 30; he correctly predicted the market crash of 1907, monopolized the entire commodity market at that time, and made a net profit of $3 million in one day; in fact, every bushel of cotton, corn, and wheat in the United States at that time had a part of him! During that crash, the great banker J.P. Morgan specifically sent someone to ask Livermore to stop buying and selling short in the market in order to save the troubled and decadent American economy. In the Great Depression of 1929, he once again made a genius short at the highest price, earning a whopping $100 million profit!
Jesse Livermore, as one of the shrewdest traders of all time, was able to manage his emotions in the midst of the storm. He was a smart and disciplined person, a person with a sense of urgency and strong logical ability. He was also a complex person who experienced repeated success and failure in the market and in marriage. He followed his own rules and traded like a lone wolf. When he was almost 60 years old, he made a lot of money, but he quickly lost it all. The tide of the market is so ruthless, and the market is no longer interested in him. This was the market's final blow to him, and he never recovered from it. The excitement of defeating the market was a thing of the past, and his magical feeling and his desire to live were also a thing of the past!
Jesse Livermore, after immersing himself in the stock market for more than 40 years and experiencing four ups and downs, wrote the classic of immortal speculative works—(Reminiscences of a Stock Operator)! This book has both practice and theory; both legend and disillusionment. Livermore is a genius speculator who, single-handedly, realized his skills and earned a mythical fortune at that time; later, due to human weaknesses, he fell into the dust and committed suicide by shooting himself. His life is a magnificent and soul-stirring super market. His life is the best interpretation of the word speculation. The book he wrote based on his own legendary experience should be read by every speculator who wants to succeed! In the book, to-the-point words frequently give readers a psychological impact, and the magnificent and spiritual operations also bring readers tremors and enlightenment. Livermore's book, Livermore himself, has made many people, and will make many people, understand the true meaning of trading and understand the vastness of life!
What exactly does the master speculator want to tell us? I summarize it into nine points. The expressions after the key points are basically quotes from Livermore's original words. Next, let us listen carefully to the teachings of the master seventy years ago!
1. The market has rules, and the rules of the market are due to unchanging human nature!
One lesson I learned early on is that there is nothing new on Wall Street. There can be nothing new on Wall Street, because speculation is as old as the mountains. What happens in the stock market today has happened before and will happen again. I have never forgotten this. I think what I really can't remember is when and how it happened. The fact that I remember in this way is how I use experience. Wall Street never changes, the money bags change, the stocks change; but Wall Street never changes, because human nature never changes.
I believe that being unable to control one's emotions is the speculator's true enemy. Hope, fear, and greed always exist; they are hidden in our hearts, waiting outside the market, waiting to jump into the market and perform, waiting for an opportunity to make a big profit; no matter when, fundamentally, due to greed, fear, ignorance, and hope, people always repeat their behavior in the same way—this is why the figures and trends formed by those numbers always repeat themselves unchanged.
2. Patiently wait for the truly perfect trend in the market; do not make predictive interventions; 'Timing is everything,' buy at the right time, and sell at the right time.
Trading is not something to do every day. Those who think they should trade all the time are ignoring the condition that trading needs a reason, and it needs to be objective and appropriate. In addition to trying to decide how to make money, traders must also try to avoid losing money. Knowing what to do is almost as important as knowing what not to do.
In fact, if I am sure that I am right before I start trading, I will always make money. What defeats me is not having enough brains to stick to the game I am good at—that is, only entering the market when the signs are favorable to my operations and satisfy me. There is a time for everything, but I didn't know that. On Wall Street, so many people who can't be considered big fools fail for this reason. Among the fools, there is a complete fool who does everything wrong everywhere and at any time, but there is a stock market fool who thinks they should trade all the time. No one can always have a good reason to buy and sell stocks every day—and no one has enough knowledge to operate cleverly every time.
A stock speculator must fight many costly enemies within. Making big money depends on 'waiting,' not on thinking. You must wait until all the factors are in your favor. Predicting the market is so difficult because of human nature, and mastering and conquering human nature is the most difficult task. Choosing the timing carefully is very important... Haste is costly. My losses were entirely due to a lack of patience, not waiting for the right moment to support a preconceived notion and plan. Not understanding that 15 years later, some things allow me to wait for two long weeks, watching a stock I'm very optimistic about rise 30 points before feeling safe to buy. This takes patience, waiting for the right key points to appear, waiting for the right trading opportunity. Patience... patience... patience—that's the key to his timing and success. He often said, 'It's not the idea that makes money, it's waiting.' All a person needs to do is observe what the market is telling him and react to it. The answer is in the market itself, and the challenge comes from correctly interpreting the facts presented.
'Timing is everything.' Before entering a trade, the most important thing is to determine whether the line of least resistance is consistent with your trading direction. My experience is that if I don't enter the market close to the beginning of a trend, I will absolutely not get much profit from this trend. The reason is that I miss the profit reserve, which is very necessary for a person's courage and patience. With this courage and patience, he can quietly watch the market changes and can hold his shares firmly in the face of the small retracements or rallies that will inevitably occur before this market ends. The market will immediately send you a signal when to enter the market, and it is equally certain that the market will also send you a signal to exit in time—if you wait patiently. 'Rome wasn't built in a day.' A truly significant trend will not end in a day or a week. It takes time for it to complete its logical process.
In many cases, Livermore holds cash and waits for a suitable market to appear. Many of his successes lie in his ability to hold cash and wait patiently until 'the right market appears in front of him.' When the market appears and there are many opportunities that are favorable to him, at this time, and only at this time, he will rush out like a cobra with a 'swoosh' sound. 'One of the keys to my later trading theory is: only trade at key points. As long as I am patient and trade at key points, I can always make money. I also believe that the largest part of a stock's market often occurs in the last two weeks or longer of this market. The same principle can also be applied to commodity futures. Therefore, I emphasize again that speculators must be patient, be ready to go, and wait.' The definition of a key point is: the most appropriate psychological moment for trading. Livermore never buys at the lowest price, and never sells at the highest price. He wants to buy at the right time and sell at the right time. 'But remember, when using key points to predict the market, if the stock does not perform as it should after crossing the key point, that is an important danger signal that needs immediate attention. As long as I lose patience and do not wait for the appearance of key points, but easily earn money, I will definitely lose money. Another thing to note is that at the end of a market, a sharp increase in trading volume is often a real distribution, because the stock is transferred from strong hands to weak hands, and from professional traders to ordinary shareholders. Ordinary shareholders believe that a sharp increase in trading volume is a signal of an active and healthy market after a normal adjustment—either an adjustment to the highest price or an adjustment to the lowest price—but this view is unfounded.
I want to make it clear to those who are willing to treat speculation as a serious business, and I want to solemnly reiterate that wishful thinking must be eliminated; people who expect to speculate every day or every week will not succeed; you can only allow yourself to enter a trade a few times a year, maybe only four or five times. Before trading, wait, wait patiently, until as many factors as possible are in your favor, and then trade. Patience can make you money. When the market is in a state of stagnation, the price of the stock is actually stagnant. It is very dangerous to predict or estimate when the market will move in a certain direction. You must wait for the market or the stock to break through. Don't estimate! Wait for the market to confirm! Don't argue with the quotation list. Cash has been, is, and always will be king. In fact, 'it is often those who hold cash and wait for the right time to trade who can make big money. Patience, patience, and more patience—not speed—is the key to success. If a shrewd speculator grasps this point well, time is his best friend. Mastering the right time to enter the market, time is not money, because sometimes, even if you enter the market early, you cannot make money—time is time, and funds are funds. Start more often and wait for the right time to enter the market to make money—patience, patience, and more patience is the key to success, don't rush.
We are all tempted by a common weakness: wanting to win every time we play. Of course, we want to win every hand. This is the human weakness that we all have, and to some extent, it is the biggest enemy of investors and speculators. If not prevented, it will eventually lead to the collapse of speculation! Sometimes, people should speculate; it is equally certain that sometimes, people should not speculate. Excellent speculators are always waiting, always patient, waiting for the market to confirm their judgment. Without market confirmation, do not predict, and do not take action. Many times, I, like many other speculators, was impatient to wait for what was sure to happen. I wanted to make profits every moment. I am human, and I also succumbed to human weaknesses. Like all speculators, I lost patience and lost correct judgment, reversing their positions—being full of hope when they should have been afraid, and feeling afraid when they should have been full of hope.
Let me repeat, when a trend really appears, there will definitely be some opportunities at the same time, and I firmly believe that anyone with speculative talent and patience can design a special method as their own principle, which will allow him to make the right judgment when he first enters the market. True trends don't end on the day they start; it takes time to complete a true trend. Remember, stocks are never too high to start buying, nor too low to start selling. But after the first trade, don't do a second unless the first one is profitable. Wait and observe. This is when your ability to interpret the market comes into play, allowing you to determine the correct time to start. The success of many things depends on starting at exactly the right time. It took me many years to understand the importance of this. It also cost me hundreds of thousands of dollars.
3. Right is right, wrong is wrong, only do the right things, don't make mistakes on top of mistakes!
A highly talented speculator once told me: 'When I see a danger signal, I don't argue with it. I get out of the way! A few days later, if everything looks good, I'll come back. I think, if I'm walking along the tracks and see a train rushing towards me at 60 miles per hour, I'll jump off the tracks and let the train pass, rather than foolishly standing there motionless. After it passes, I can always get back on the tracks if I want to.' This statement very vividly expresses a kind of speculative wisdom, which I will never forget.
Strangely, the trouble most speculators encounter is that something within themselves prevents them from having the courage to close their positions when they should. They hesitate, and in their hesitation, they watch the market move many points in a direction that is unfavorable to them.
Obviously, the thing to do is to be bullish in a bull market and bearish in a bear market. Sounds funny, right? But I had to understand this general principle deeply before I could see how to put it into practice. It took me a long time to learn to trade according to these principles. Interpreting the market is an important part of this game, and starting at the right time is also important, and sticking to your position is just as important. But my biggest discovery is that a person must study and evaluate the overall situation in order to predict the possibility of the future. I no longer blindly gamble, no longer care about how to master operating skills, but care about winning my own success through hard work and clear thinking. I also found that no one can escape the danger of making stupid operations. If a person operates stupidly, he must pay the price for his stupidity.
4. The market encompasses and digests everything. It is always right, and adapting to the market is the wisest thing to do!
My theory is: 'Behind these major trends, there is always an irresistible force.' It is enough to know this, and it is not a good thing to be too curious about all the reasons behind the price movement. As long as you recognize where the trend appears and steer your speculative boat along with the trend, you can benefit from it. Don't argue with the market, and most importantly, don't argue with the market. The public should always remember the elements of stock trading. When a stock rises, there is no need to spend time explaining why it rises. Continuous buying will keep the stock price rising. As long as the stock price continues to rise, occasionally there will be natural small retracements, and following the rise is a fairly safe method. However, if the stock price gradually begins to fall after a long period of steady rise, with only occasional rebounds, it is clear that the path of least resistance has changed from up to down. That's the situation, so why look for explanations? There may be good reasons for the stock price to fall, but these reasons are only known to a few people, and they either keep the reasons secret or tell the public that the stock is cheap. This is the essence of the game, and the public should understand that the few people who know the inside story will not tell the truth.
The simple fact is that the market always changes first, and then there is economic news. The market does not react to economic news. The market is alive, and it reflects the future. Therefore, it is very foolish to try to predict the stock market's movement based on current economic news and current events. Greed, like fear, distorts reason. The stock market only tells the facts, only tells the reality, only tells the reason. The stock market is never wrong, it is the traders who are wrong.
5. Losses are the cost of trading. Failure is not terrible; what is terrible is not learning enough lessons from failure!
No matter how experienced a trader is, there is always a possibility that he will make mistakes and make losing trades. Because speculation cannot be 100% safe. So-called experience is more lessons, more profound, heartbreaking, and embarrassing; if it doesn't hurt, you can't remember it, if it doesn't hurt, you won't reflect on it. That's how things are. It's normal for a person to make mistakes, but if he can't learn from his mistakes, then he's really wronged.
There is nothing in the world that teaches you what you shouldn't do better than losing everything. Once you know what not to do to avoid losing money, you start learning what to do to make money. If someone tells me my method won't work, I'll try it thoroughly anyway to make sure. Because when I'm wrong, only one thing—losing money—can convince me I'm wrong. I know that one day I'll find the mistakes and stop making them. Only when I'm making money am I right, and that's speculation.
It takes a person a long time to learn all the lessons from all his mistakes. Some say there are two sides to everything, but the stock market only has one side, not the bull side or the bear side, but the right side. It took far longer to imprint this rule deeply in my mind than most of the more technical aspects of stock speculation.
Losing money is the least likely thing to bother me. After I admit a loss, the loss never bothers me. I forget it the next day. But mistakes—not admitting losses—are things that hurt the pocket and the mind. If a person doesn't make mistakes, he will own the world within a month. But if he can't benefit from his mistakes, he can never own anything good.
6. Trading is a confrontation between reason and emotion! Trading requires rational planning.
I realized early on that the stock market is never dull. It is designed to fool most people, most of the time. The two main emotions in the stock market are hope and fear—hope often arises from greed, and fear often arises from ignorance. I believe that being unable to control one's emotions is the speculator's true enemy. Hope, fear, and greed always exist; they are hidden in our hearts, waiting outside the market, waiting to jump into the market and perform, waiting for an opportunity to make a big profit. Hope is essential to human survival, but hope is the same as its cousins in the stock market—ignorance, greed, fear, and distorted reason. Hope obscures the facts, and the stock market only recognizes facts. The results are objective and final, just like nature, and will not change. Also, always remember that you can win a horse race, but you can't win all the horse races. You can make money on one stock, but you can't make money from Wall Street at any time—no one can.
Greed, fear, impatience, ignorance, and hope, all these will exhaust speculators. After several failures and disasters, investors may become demoralized, depressed, and despondent, giving up the market and giving up the opportunities to make money that the market provides. The biggest problem that speculators must control is their emotions. Remember, what drives the stock market is not reason, logic, or pure economic factors, what drives the stock market is the unchanging nature of people. It won't change because it's our nature.
The speculator's main enemy always comes from within. Human nature is inseparable from hope and fear. In speculation, if the market goes against you, you hope that every day is the last day—and if you don't follow hope, you will lose more than you should—as strong as the meritorious officials who opened up the territory. When the market goes your way, you are afraid that tomorrow will take away all your profits, so you exit—too quickly. Fear makes you not earn as much money as you should. Successful traders must overcome these two deeply ingrained instincts. He must change what you can call natural impulses. He should be afraid when he is hopeful, and he should be hopeful when he is afraid. He must fear that his losses may turn into greater losses, and hope that his profits may turn into greater profits. It is absolutely wrong to gamble on stocks like the average person.
Remember, if an investor lacks discipline, a clear strategy, and a simple and easy-to-implement plan, he will fall into the trap of emotions. Because a speculator without a plan is like a general without a strategy, and therefore without a feasible battle plan. A speculator without a clear plan can only speculate, speculate, and speculate again, and one day unfortunately 'falls off the horse' and suffers a complete failure in the stock market. In fact, in all businessmen's days, there is no plan to deal with the most important things. This is like a general on the battlefield, whose soldiers' lives depend on his meticulous plan and the execution of that plan. In the stock market, there is no room for error or carelessness.
7. Control your trading, manage your funds.
Unless you know that the transaction you are going to make is financially safe, never make any transaction. 'The dilemma faced by inexperienced speculators is often paying too much for each position. Why? Because everyone wants to trade. Paying too much for each transaction is not in line with human nature. People want to buy at the lowest price and sell at the highest price. Keep your mind peaceful, don't argue with the facts, don't have hope when there is no hope, don't argue with the quotation machine, because the quotation machine is always right—there is no position for hope, no position for guessing, no position for fear, no position for greed... no position for emotion in speculation.'
'Finally, speculators should buy stocks several times, and only buy a certain proportion each time.' If I buy a stock that I am optimistic about in a certain situation, but it does not perform as I hoped, for me, this is enough evidence to sell the stock. If the stock rises later, I will not blame myself, nor will I have any painful thoughts. Later, I put forward my own theory in actual operation. This theory emphasizes the importance of the time of capital occupation in stock market transactions. When speculators manage their funds, this desire to 'always win' is his biggest enemy, and it will eventually lead to disaster. In the stock market, time is not money, time is time, and money is money.
I put forward my 10% rule—if my loss in a trade exceeds 10%, I will immediately throw it away. I never ask why, the price of the stock has fallen, and that is the reason why I came out. I throw it out by instinct. In fact, this is not instinct, it is the subconscious accumulated over the years of fighting in the stock market. You must obey the rules you set yourself... You can't deceive yourself, don't procrastinate, don't wait! My basic principle is never to let the loss exceed 10% of the capital.
8. The investor's biggest enemy is not the market, not anything else, but the investor himself. Big moves are what make you big money!
Let me say one thing here: after so many years on Wall Street, making millions of dollars and then losing millions of dollars, I want to tell you this: my ideas have never made me big money, it's always been my holding on that has made me big money, understand? It's my holding on! It's not at all surprising to be right about the market. You'll always find a lot of people going long at the beginning of a bull market, and you'll also find a lot of people going short at the beginning of a bear market. I know a lot of people who are right at the right time, and they start buying or selling at prices that are exactly where the maximum profit should occur. Their experiences are all the same as mine—that is, they don't make real money from it. It's rare to find someone who is both right and holds on. I've found this to be the hardest thing to learn. But a stock operator can only make big money after he truly understands this. This is absolutely true. After an operator knows how to operate, it's easier to make millions of dollars than it is to make hundreds of dollars when he knows nothing.
The reason is that a person may see clearly and definitely, but when the market is leisurely and preparing to go in the direction he thinks it will go, he becomes impatient or suspicious. This is why so many people on Wall Street who don't belong to the class of fools at all, or even to the third level of fools, lose money. The market didn't defeat them. They defeated themselves because they had brains but couldn't hold on. I began to understand that to make big money, you must make it in big moves. No matter what the factors that drive the big move may be, the facts are there, and the big move can continue, not as a result of insider group hype or the skills of financiers, but relying on the basic situation. No matter who opposes it, the big move will definitely move as quickly as possible to the end with the driving force behind it.
Ignoring big fluctuations and trying to grab profits in and out is a fatal problem for me. No one can catch all the ups and downs. In a bull market, your approach is to buy and hold tight until you believe the bull market is about to end. To do this, you must study the entire trend, not study the tips or special factors that affect individual stocks, and then you must forget all your stocks, forget them forever! Until you see—or you like to say, until you think you see—the market reversing, the entire trend starting to reverse. To do this, you must use your own mind and vision, otherwise my advice will tell you the same idiotic thing as buying low and selling high. One of the most helpful things anyone can learn is to give up trying to catch the last point—or the first point. These two points are the most expensive things in the world. In total, these two points have cost stock friends millions of dollars, enough to build a concrete highway across the American continent.
A person who lacks confidence in their own judgment won't go far in this game. These are probably all I've learned—study the overall situation, take a position, and stick to it. I can wait with complete patience, see that it will fall, but not waver, knowing that it's only a temporary phenomenon. I once shorted 100,000 shares, seeing a major rebound coming. I determined—correctly—that this rebound was, in my view, inevitable, even healthy, and would make a $1 million difference on my book profit. I still stood firm, watching half of the book profit being wiped out, without considering covering first and shorting again on the rebound. I knew that if I did that, I might lose my position and thus lose the opportunity to make a lot of money. Big moves are what make you big money.
9. Speculation is a game, but it is also your own business, requiring continuous effort, dedication, and summarization.
I was looking for a game bigger than entertainment and social interaction. I wanted to become the best person in the stock market through my own efforts—this brought me real joy and satisfaction. Stock trading is actually a game, and you must win this game. Good stock traders must be like well-trained professional athletes. They must develop good living habits and maintain good physical strength if they want to keep their energy at its peak. Physical strength and energy must be consistent, because there is no more tense and exciting battlefield than the stock market.
It's never been money that drives me; it's a game, a game of solving mysteries, a game of confusing and complicating the greatest minds in human history. For me, passion, challenge, and excitement all lie in winning this game, a game that is a vibrant riddle, a riddle with a pun, and the answer is to be told by me to all the men and women speculating on Wall Street. In the game, your nerves are pushed to the limit, but the rewards are very high. My business is trading—that is, following the facts before me, not following what I think others should do.
Let me give you a reminder: your success will be directly proportional to the sincerity and loyalty you show in your efforts, including keeping your own records, thinking for yourself, and drawing your own conclusions. If a person wants to make a living from this game (speculation), he must believe in himself and his own judgment. No one can make big money by being told by others what to do. The stock market is the largest and most complex mystery invented by mankind, and the person who solves this mystery should win the grand prize. It takes a person a long time to learn all the lessons from all his mistakes. Some say there are two sides to everything, but the stock market only has one side, not the bull side or the bear side, but the right side. It took far longer to imprint this rule deeply in my mind than most of the more technical aspects of stock speculation. There is only one path to success in speculation, and that is effort, effort, and more effort.
Finally, let us end with the words of Wall Street observer Richard Smitten: 'Thank you, Jesse Livermore, thank you for your wisdom, thank you for your hard work, thank you for your extraordinary understanding. In the quest for speculative methods, you have never had an end.'