I want to share a message from the master Livermore with everyone; I hope everyone can gain some insight!
In every field of human endeavor, there are always very few exceptional individuals! Jesse Livermore is one such person; he was a solitary, silent, and mysterious figure; a genius in speculation and a legend on Wall Street! Livermore started trading stocks at the age of 15 and became a millionaire before he turned 30; he correctly predicted the market crash of 1907, monopolizing the entire commodity market at the time and making a net profit of 3 million dollars in a single day. In fact, he had a share in every bushel of cotton, corn, and wheat in the United States at that time! During that crash, the big banker J.P. Morgan specifically sent people to ask Livermore to stop short-selling in the market to save the struggling American economy. During the Great Depression of 1929, he once again geniusly shorted at the peak, making a whopping 100 million dollars in profit!
Jesse Livermore, one of the shrewdest traders of all time, was able to control his emotions at the peak of the market. He was a smart and disciplined person, with a strong sense of urgency and logical ability. He was also a complex individual, experiencing repeated successes and failures in both the market and his marriage. He followed his own rules and traded like a solitary wolf; close to the age of 60, he made a fortune but quickly lost it all. The market tide is merciless, and it no longer took an interest in him. This was the market’s final blow to him, from which he never recovered. The thrill of conquering the market had become the past, and his magical instincts and desire to survive also became history!
After over 40 years immersed in the stock market, experiencing four rises and four falls, Jesse Livermore wrote the classic in speculative literature—'Reminiscences of a Stock Operator!' This book is both practical and theoretical; it is both legendary and disillusioning. Livermore was a genius speculator who, operating alone, grasped the techniques and accumulated mythic wealth; later, due to human weaknesses, he fell from grace, tragically taking his own life. His life was a magnificent epic, a super trend that moved the heart. His life is the best interpretation of the word 'speculation.' This book, written around his legendary experiences, should be required reading for every aspiring speculator! The penetrating words throughout the book frequently impact readers psychologically, and the filled-with-spirit and righteous operations also provide readers with shock and enlightenment. Livermore's book and Livermore himself have undoubtedly helped many understand the true essence of trading and the vastness of life!
What exactly do great traders tell us? I summarize it into nine points, with the following statements largely quoting Livermore’s original words. Now let us listen attentively to the teachings of the master from seventy years ago!
The market is systematic; its regularity is due to unchanging human nature!
One lesson I learned early on is that there is nothing new on Wall Street. There cannot be new things on Wall Street because speculation is as ancient as mountains. What happens in the stock market today has happened before and will happen again in the future. I have never forgotten this. What I truly cannot remember is when and how it happened; I remember these facts using my experience. Wall Street never changes, but money and stocks change; yet Wall Street never changes because human nature never changes.
I believe that losing control of one’s emotions is the true enemy of the speculator. Hope, fear, and greed always exist; they hide within us, waiting outside the market to jump in and take advantage of opportunities to make a big profit; fundamentally, it’s all about greed, fear, ignorance, and hope. People always repeat their behaviors in the same way—that’s why those patterns and trends made of numbers always repeat themselves.
Be patient and wait for the market's truly perfect trend; do not make predictive interventions; 'Timing is everything.' Buy at the right time, sell at the right time.
Trading is not something to be done every day; those who think they must trade all the time overlook a condition: trading requires reason, and that reason must be objective and appropriate. Besides trying to figure out how to make money, traders must also try to avoid losing money. Knowing what you should do is almost as important as knowing what you should not do.
In fact, if I am certain of my correctness before starting to trade, I will always make money. What beats me is a lack of sufficient intelligence and sticking to the game I am good at—that is, only entering the market when the signs are favorable and satisfying to my operations. One must always consider timing in everything, but I was not aware of this. On Wall Street, so many people who cannot even be classified as complete fools fail, and the reason is precisely this. Among fools, there are those who are downright foolish; they do things wrong anywhere and anytime, but then there are the stock market fools who think they must trade all the time. No one can always have the right reasons to buy and sell stocks every day—nor does anyone have enough knowledge to operate wisely every time.
Stock traders must fight against many costly enemies within themselves. Making big money relies on ‘waiting’ rather than just thinking. You must wait until all factors are in your favor. The difficulty in predicting the market stems from human nature; mastering and conquering human nature is the hardest task. Careful timing is crucial... Acting too hastily comes at a cost. My losses were entirely due to a lack of patience, failing to wait for the right moment to support the views and plans already formed. It took me 15 years to realize that some things allowed me to wait two long weeks, watching a stock I was very bullish on rise by 30 points before I felt it was safe to buy. It requires patience, waiting for the right key points to appear, waiting for the right trading opportunities. Patience, patience, patience—that's the secret to seizing opportunities and achieving success. He often said, 'It’s not the idea that makes money, but the waiting quietly.' All one needs to do is observe what the market is telling him and respond accordingly. The answer lies within the market itself; the challenge comes from correctly interpreting the presented facts.
“Timing is everything.” Before entering a trade, the most important thing is to determine whether the line of least resistance aligns with your trading direction. In my experience, if I do not enter the market close to the beginning of a trend, I will never gain much profit from that trend. The reason is that I miss out on the profit reserves, and this reserve is essential for a person's courage and patience. With this courage and patience, one can calmly observe market changes and hold onto stocks in the face of the small pullbacks or rebounds that continuously appear before the end of this market move. The market will instantly signal when to enter; likewise, the market will timely signal when to exit—if you wait patiently. “Rome wasn’t built in a day.” Truly significant trends do not end in a day or a week. They take time to complete their logical process.
Livermore often stood aside and waited for the right market conditions to appear. Many of his successes were due to his ability to hold cash and patiently wait until 'the right market presented itself to him.' When the market appeared, and many favorable opportunities arose, only then—only at that moment—did he strike like a cobra, 'suddenly' jumping in. 'A key part of my later trading theory is to only trade at critical points. As long as I have patience and trade at critical points, I can always make money. I also believe that the biggest part of a stock's movement often occurs in the last two weeks or longer of that movement. The same principle applies to commodity futures. So, I repeat, speculators must be patient, poised for action, and wait.' The definition of a critical point is: the most appropriate psychological moment to trade. Livermore never bought at the lowest price, nor did he ever sell at the highest price. He bought at the right time and sold at the right time. 'But remember, when using critical points to predict market movements, if the stock does not perform as it should after crossing the critical point, that is an important danger signal that requires immediate attention. If I lose patience and do not wait for the appearance of a critical point, but instead make money easily, I will definitely lose money. Another thing to note is that when a market is about to end, a significant increase in volume is often a true distribution, because stocks are being transferred from strong hands to weak hands, from professional traders to ordinary investors. Ordinary investors believe that a significant increase in volume is a sign of a healthy market after normal adjustments—not adjustments to the highest or lowest prices—but this view is unfounded.
I want to clarify to those willing to see speculation as a serious business, and I hope to reiterate that wishful thinking must be eliminated; those who expect to speculate every day or every week will not succeed; you allow yourself to enter trades only a few times a year, possibly only four or five times. Before trading, wait, patiently wait, until as many factors as possible are in your favor before making a trade. Patience can make you money. When the market is in a stalemate, stock prices are effectively stagnant; do not predict or estimate when the market will move in what direction—that is very dangerous. You must wait for the market or stock to break out. Do not estimate! Wait for the market to confirm! Do not argue with the quotes. Cash has been, is, and will always be king. In fact, 'it is often those who stand aside and wait for the right moment to trade who can make big money. Patience, patience, and more patience—not speed—is the key to success. If a savvy speculator grasps this, time will be their best friend. Mastering the right timing to enter the market, time is not money; sometimes, even if you enter the market early, you may not make money—time is time, and money is money. More often than not, please begin; funds should enter the market at the right time to earn money—patience, patience, and more patience is the key to success; do not rush.
We are all tempted by a common weakness: wanting to win on every hand; of course, we want to win every single hand. This is precisely the human weakness we all share, to some extent, the biggest enemy of investors and speculators; if left unchecked, it will eventually lead to the collapse of speculation! Sometimes, people should speculate; equally assuredly, there are times when people should not speculate. Excellent speculators are always waiting, always patient, waiting for the market to confirm their judgments. Without market confirmation, do not predict and do not act. Many times, like many other speculators, I lost patience waiting for what was sure to happen. I wanted to earn profits all the time. I am human and succumb to human weaknesses. Like all speculators, I also lost patience and lost my correct judgment, reversing their positions—being hopeful when I should feel fear and feeling fear when I should be hopeful.
Let me repeat: when a trend truly appears, corresponding opportunities will certainly arise concurrently. I firmly believe that anyone with speculative talent and patience can devise a special method as their principle, allowing them to make correct judgments when initially entering the market. True trends do not end on the day they begin; completing a real trend takes time. Remember, stocks are never too high to make you unable to buy, nor too low to make you unable to sell. However, after the first trade, do not make a second trade unless the first one is profitable. Wait and observe. This is when your analytical ability comes into play, allowing you to determine the right timing to begin. Whether something succeeds or fails often depends on whether it starts at the entirely correct moment. It took me many years to understand the importance of this, costing me tens of thousands of dollars.
Being right is being right, and being wrong is being wrong. Only do what is right; do not make mistakes on top of mistakes!
A highly talented speculator once told me, 'When I see a danger signal, I do not argue with it. I avoid it! A few days later, if everything still looks good, I come back. I think, if I were walking down a railroad track and saw a train coming at me at 60 miles per hour, I would jump off the track and let the train pass, rather than stand there foolishly. Once it passes, as long as I wish, I can always return to the track.' This vividly expresses a kind of speculative wisdom that I always remember.
Strangely, most speculators encounter trouble because some inner elements prevent them from having enough courage to close their positions when they should. They hesitate, watching the market move many points against them while they linger.
Clearly, what should be done is to be bullish in a bull market and bearish in a bear market. It sounds amusing, doesn’t it? However, I must deeply understand this general principle to see how to implement it. It took me a long time to learn to trade according to these principles. Analyzing the market is an important part of this game; starting at the right time is also important, as is sticking to your positions. However, my biggest discovery is that one must study and evaluate the overall situation to predict possibilities. I no longer blindly gamble; I no longer care about mastering technical skills; instead, I focus on winning my success through diligent study and clear thinking. I also find that no one is immune to the danger of making foolish trades. When a person makes foolish trades, they must pay the price for their folly.
The market encompasses and digests everything; it is always right. Following the market is the wisest course of action!
My theory is: 'Behind these significant trends, there is always an irresistible force.' Knowing this is enough; being overly curious about all the reasons behind price movements is not a good thing. Just recognize where the trend is appearing, steer your speculative vessel along with the tide, and you will benefit. Do not argue with the market; most importantly, do not argue about who is superior to the market. The public should always remember the elements of stock trading. When a stock rises, there is no need to expend energy explaining why it is rising. Continuous buying will keep the stock price rising. As long as the stock price continues to rise, occasional natural minor pullbacks, following the upward trend, are generally quite safe. However, if the stock price, after a prolonged stable rise, gradually begins to decline with only occasional rebounds, it is evident that the line of least resistance has changed from upward to downward. That is the situation; why search for explanations? The drop in stock prices may have very good reasons, but these reasons are known only to a few; they either keep the reasons secret or mislead the public by saying that the stock is very cheap. This is the essence of the game; the public should understand that few insiders will reveal the truth.
The simple fact is that market changes always happen first, followed by economic news; the market does not react to economic news. The market is alive; it reflects the future. Therefore, attempting to predict stock market trends based on current economic news and events is extremely foolish. Both greed and fear distort rationality. The stock market only speaks of facts, reality, and rationality; the market is never wrong; the trader is wrong.
Losses are the cost of trading; failure is not scary, the scary thing is not learning enough from failure!
No matter how experienced a trader is, the possibility of making mistakes and incurring losses always exists. Speculation cannot be 100% safe. Experience comes from many deep and painful lessons; if it’s not painful, it’s not memorable, and if it’s not painful, there’s no reflection. That’s just how it is. It’s normal for someone to make mistakes, but if they cannot learn from those mistakes, it’s truly unfortunate.
Nothing teaches you what not to do better than losing everything. When you finally understand what not to do to avoid losing money, you begin to learn what to do in order to win money. If someone tells me that my methods do not work, I will thoroughly test them to confirm that. Because when I am wrong, the only thing that can convince me is the loss of money. I know that one day I will find the mistake and stop making errors. I am only correct when I am making money; that is speculation.
A person needs a long time to learn all the lessons from all their mistakes. Some say everything has two sides, but the stock market has only one side—not the bullish side or the bearish side, but the correct side. Let this principle be deeply engraved in my mind; the time spent on this far exceeds most technical aspects in stock speculation.
Losing money is the least troubling thing for me. Once I acknowledge a loss, it never bothers me again. I forget it the next day. But making mistakes—failing to acknowledge a loss—is what harms both my pocket and my spirit. If a person never makes mistakes, they could possess the entire world within a month. But if they cannot benefit from their mistakes, they will never own anything good.
Trading is a battle between rationality and emotion! Trading requires a rational plan.
I realized long ago that the stock market is never bland or unremarkable. It is designed to fool most people most of the time. The two main emotions in the market, hope and fear—hope often arises from greed, while fear often comes from ignorance. I believe that losing control of one’s emotions is the true enemy of the speculator. Hope, fear, and greed always exist; they hide within us, waiting outside the market to jump in and take advantage of opportunities to make a big profit. Hope is crucial for human survival. But hope is akin to its cousins in the stock market—ignorance, greed, fear, and distorted rationality. Hope obscures the facts, while the stock market only recognizes facts. The results are objective, final, and unchangeable, just like nature. Additionally, always remember that while you can win a horse race, you cannot win every horse race. You can make money on one stock, but you won't always make money on Wall Street—no one can.
Greed, fear, lack of patience, ignorance, and hope—all these can exhaust the speculator. After several failures and disasters, investors may become demoralized, frustrated, and depressed, giving up on the market and the opportunities it offers for making money. The biggest issue that speculators must control is their emotions. Remember, it is not rationality, logic, or pure economic factors that drive the stock market; it is human nature, which never changes. It does not change because it is our nature.
The main enemy of speculators always arises from within. Human nature cannot be separated from hope and fear. In speculation, if the market goes against you, you hope every day will be the last day—and if you do not follow hope, you will lose more than you should—strong enough to rival the grand heroes of history. When the market moves as you wish, you fear that tomorrow it will take all your profits away, so you exit—exiting too early. Fear prevents you from making as much money as you should. Successful traders must overcome these two deeply ingrained instincts. They must change what you might call impulsive nature. When they are hopeful, they should actually be fearful; when they are fearful, they should hold onto hope. They must fear that their losses may become larger losses, while hoping that their profits may become larger profits. Gambling on stocks in the way most people do is absolutely wrong.
Remember, if an investor lacks self-discipline, has no clear strategy, and no simple and actionable plan, he will fall into the trap of emotions. A trader without a plan is like a general without a strategy and no actionable battle plan. A trader without a clear plan can only speculate, speculate, and speculate again; eventually, they will unfortunately 'fall off their horse' and suffer a complete failure in the stock market. In fact, for all businessmen in a day, there is no plan to address the most important matters. It is like a general on the battlefield; the lives of his soldiers depend on his meticulous planning and the execution of that plan. In the stock market, there is no room for errors or carelessness.
Control your trading, manage your funds.
Unless you know that the trade you are about to make is financially secure, never make any trade. 'Inexperienced speculators often face the dilemma of paying too much for every position. Why? Because everyone wants to trade. Paying too much for every trade is against human nature. People want to buy at the lowest price and sell at the highest price. Maintain a calm mindset; do not argue with the facts, do not hold onto hope when there is none, do not argue with the price ticker, because the price ticker is always correct—in speculation, there is no place for hope, no place for guessing, no place for fear, no place for greed... no place for emotions.'
Finally, speculators should buy stocks in several installments, buying only a certain proportion each time. If I buy a stock I am optimistic about under certain circumstances, but it does not perform as I hoped, that is sufficient evidence for me to sell the stock. If that stock later rises, I do not blame myself, nor do I have any painful thoughts. My later actual operations proposed my theory, emphasizing the importance of time occupied by funds in stock market trading. In managing their own funds, this desire to 'always want to win' is the biggest enemy of the speculator, ultimately leading to disaster. In the stock market, time is not money; time is time, and money is money.
I have proposed my 10% rule—if my loss in a trade exceeds 10%, I immediately sell. I never question the reasons; if the stock price drops, that is my reason for exiting. I instinctively sell; in fact, this is not instinct but a subconscious that has accumulated from years of battling in the stock market. You must obey the rules you set for yourself... do not deceive yourself, do not procrastinate, do not wait! My basic principle is to never let losses exceed 10% of my capital.
The investor's greatest enemy is not the market, not anything else, but the investor themselves; only big fluctuations can make you big money!
Let me tell you something: after experiencing so many years on Wall Street, making millions and losing millions, I want to tell you this: my thoughts have never made me big money; it is always my steadfastness that has earned me big money. Do you understand? It is my steadfastness! It is no surprise that I have made correct judgments about the market. In a bull market, you will always find many who were bullish from the beginning, and in a bear market, you will find many who were bearish from the start. I know many people who made correct judgments at the right time; when they started buying or selling, the prices were exactly at the levels where maximum profits should appear. Their experiences are all the same as mine—that is, they did not make real money from it. Those who can judge correctly and remain steadfast are rare; I find this to be the hardest thing to learn. But only after a stock trader truly understands this can they make big money. This is absolutely true; after a trader knows how to operate, making millions is easier than making hundreds when they knew nothing.
The reason is that a person may see clearly and distinctly, yet when the market is calmly preparing to move in the direction they believe it will, they become impatient or doubtful. Wall Street has so many people who do not even belong to the fool class, nor to the third-class fools, yet they still lose money; the reason lies here. The market did not defeat them. They defeated themselves because, although they have intelligence, they cannot remain steadfast. I began to understand that to make big money, one must earn it through major fluctuations. Regardless of what factors may trigger these big fluctuations, the facts are clear: big fluctuations can persist, not due to insider trading or the skills of financiers but due to fundamental conditions. No matter who opposes, big fluctuations will push through based on the driving forces behind them as quickly as possible.
Ignoring big fluctuations and attempting to jump in and out is a fatal flaw for me. No one can capture every rise and fall; in a bull market, your approach is to buy and hold until you believe the bull market is about to end. To do this, you must study the overall trend rather than focus on specific stocks or factors affecting them, and then you must forget all your stocks—forget them forever! Until you see—or until you think you see—the market reverse, the entire trend begins to reverse. To do this, you must use your own mind and vision; otherwise, my advice will sound as foolish as buy low and sell high. The most helpful lesson anyone can learn is to stop trying to catch the last tick—or the first tick. These two ticks are the most expensive things in the world. Altogether, these two ticks have cost stock enthusiasts millions of dollars, enough to build a cement highway across the continent.
A person without confidence in their judgment cannot go far in this game. These are probably all the lessons I have learned—studying the overall situation, holding positions, and persisting. I can wait without any impatience; I can see a downturn coming but remain steadfast, knowing it is only a temporary phenomenon. I once shorted 100,000 shares, seeing a major rebound was imminent. I recognized—correctly recognized—that this rebound in my view was inevitable, even healthy, and would create a $1 million difference on my balance sheet. I remained steady as a mountain, watching half of my paper profit evaporate, without considering the practice of covering first and then shorting again during the rebound. I knew that if I did that, I might lose my position and thus lose the opportunity to make big money; only major fluctuations can earn you big money.
Speculation is a game, but it is also your own business that requires continuous effort, dedication, and reflection.
I am looking for a game larger than mere recreation and social interaction. I want to become the best in the stock market through my efforts—this brings me true joy and satisfaction. Trading stocks is essentially playing a game; one must win in this game. Good stock traders cannot be unlike well-trained professional athletes; they must develop good habits and maintain physical vitality if they want their energy to always be at peak levels. Physical fitness and energy must be in sync because there is no battlefield more intense and exciting than the stock market.
What drives me is not money; it is a game, a game of unraveling mysteries, a game that complicates the greatest minds in human history. For me, passion, challenge, and excitement are all about winning this game, a game that is a dynamic riddle, a riddle with a double entendre, and that answer must be told by me to all men and women speculating on Wall Street. In this game, your nerves are pushed to the limit, but the rewards are also very high. My career is trading—that is, following the facts at hand rather than following what I think others should do.
Let me remind you: your success will be proportional to the sincerity and loyalty you demonstrate in your own efforts, including keeping your own trading records, thinking for yourself, and drawing your own conclusions. If a person wants to live off this game (speculation), they must believe in themselves and their judgment. No one can get rich based on what others tell them to do. The stock market is the largest and most complex puzzle invented by humanity; those who solve this puzzle should receive the grand prize. A person needs a long time to learn all the lessons from all their mistakes. Some say everything has two sides, but the stock market has only one side—not the bullish side or the bearish side, but the correct side. Let this principle be deeply engraved in my mind; the time spent on this far exceeds most technical aspects in stock speculation. There is only one path to success in speculation, and that is effort, effort, and more effort.
