Jesse Livermore - Concepts

Discussion in 'Trading' started by Palindrome, Sep 25, 2016.

  1. Palindrome


    I'm sure a fair amount of you have read reminiscences.

    Wondering if any of you actually trade to a degree like him?

    Clearly a lunatic trader, massive leverage, huge concentrated bets, suicide in the end.

    Stan Druckenmiller seems to trade similar to Livermore. From what I have read, he puts "all" his eggs in 1 basket, and watches the basket very closely. "All" is probably an overstatement, perhaps 20% in 1 position, for instance Gold in December, I think he loaded up. I know he was responsible for a large portion of Soros' famous Sterling short...Think they bet 200% of their money on that 1 position.

    I thought I would open up a discussion on this guy, and see if any of you trade like that.

    He would look to buy underneath massive moves, for instance, if a stock dropped from 30 to 10, and that 10 level was significant he would look for the retest and bet heavy on the reversal. If it would start to reverse to his favor, he would, then add again.

  2. comagnum


    Livermore a lunatic trader? Never heard him called that before. Livermores insights into the market are timeless - he was the all time grand master of the game for sure. So he used leverage? From what I read his margin was closer to 10%, less leverage than what futures traders have now. So what if he took risk, the younger generation today is the least risk tolerant in history and it shows. Extraordinary gains require extraordinary risk, there is no way around it. Jim Rogers also puts all his eggs in one basket and watches it closely. He said that diversification is what the bewildered herd thinks is safe, which chokes the upside severely and usually does little to help in a real market melt down.
    Last edited: Sep 25, 2016
  3. Palindrome


    I was under the impression he would trade with massive leverage.... 600% in an individual stock. I guess Lunatic is a strong word.... perhaps I should of replaced Lunatic with Balls of Steal.
  4. he was down 3 mil at one point before amassing 100 mil during the great depression

    makes sense why stocks crashed as much as they did....regulations on leverage back then were nonexistent
  5. What I've kept from him is the notion of "Path of least resistance" which I use to trade. As well as "Best allies are Conditions and Suckers". However there is much more liquidity than before and big orders are sliced into small chunks now... The thing I keep for later is "Build up your position on the right side" as I can't build up positions yet (1 Contract).

    If I remember well there is an old thread with someone trying to automate his strategy... Or at least trying to put all the pieces together.
    Last edited: Sep 25, 2016
  6. comagnum


    makes sense why stocks crashed as much as they did....regulations on leverage back then were nonexistent

    The roaring 20s the retail investor/trader had margins as low as 10% and could get loans from brokers. Today the retail investor has overnight margin as low as 5% and day margin well under 1% and we all know how easy credit had become in our era. Some of the biggest hedge fund managers have commented lately how dangerously thin the real liquidity is.
  7. birzos


    If you have the confidence to trade 20% of your account, who says it can't work. Too many opinions, the markets don't care about those. The markets have 1,000,001 ways to work, one persons disaster is another persons bliss, by his own hand he chose the wrong road but that's life.

    If you can do one trade a year, earn 20% beating almost every fund in the market, and do something else it sounds much more interesting and pouring over charts day in day out, but that's one persons opinion.
    lawrence-lugar and comagnum like this.
  8. Some things I've incorporated into my own style that have been influenced by Reminiscences are:

    1. When it's good to be out, it must necessarily be good to reverse. If it's not good to reverse, it mustn't be correct to get out.

    This is true to an extent in certain contexts. I personally trade currencies with huge leverage. During the week or so every month that I'm trading, I'm either long or short at all times. I'm looking for either reversal or breakthrough points with a lot of volatility. I can handle quite a few 10 pip losses at 32:1 leverage before I recover my losses and achieve significant profits if I can identify entry points where the price isn't likely to go sideways for more than a few days. In this particular context, livermores maxim about perpetual reversal reigns true.

    2. Focus on the big swing and not the little fluctuations.

    I've had much more success stepping up from 1-5 min charts, where I would scalp for quick little profits, to 1-3 hour charts where I go for long multiple day/week trends.

    3. Be content holding on when you have a position.

    When you're short in a bear market, don't rush to exit and attempt to sell again on a correction. Avoid all the in and out headache and just HOLD ON. No massive trade achieving triple or even double digit returns was ever achieved without holding on.

    There are many others but these are all concepts he espoused that I believe are still applicable to markets today and potentially universally applicable to markets as long as there are such things.
    _eug_, Sprout and Pekelo like this.
  9. Traderz


    I've read Reminiscences of a Stock Operator definitely an interesting read. Was he really that great of a trader if in the end he lost a majority of his wealth and blew his head off? Or was he just a bi polar outlier?
  10. comagnum


    He did not exactly die poor, his estate was valued at over 5 million and he still had annuities that enabled his family to live well, like trips to Europe. He was a speculator for sure, probably only happy when he was on a trump. Did he keep every dollar he made? no, but he still got out with a fortune.
    #10     Sep 26, 2016