Jesse Livermore – 5 Key Lessons to Learn

Jesse Livermore – Introduction

Jesse Livermore is one of the most interesting traders of all time. Throughout his career, he amassed a massive amount of money. At his peak, he was valued at more than $1 billion (in today’s terms). Jesse started his career early. At 15 years, he had mastered the art of trading, making $1000 ($25K in today’s terms) profit. He was also famous for betting against the massive 1929 depression where most investors and institutions lost money. In this book, I will highlight five key lessons one should learn from Jesse Livermore. The lessons in this book are derived from the book Reminiscence of a stock operator by Edwin Levfre. The book was published in 1923 and today it still ranks as one of the best business books of all time.

#1 – Nothing New Happens in the Market

The first main lesson from Livermore is that nothing new happens in the financial market. In this, he meant that the market operates in cycles. What happened yesterday will probably happen in the next week. As a trader, this is an important lesson you need to know. By having this understanding, you will be at a good place to allocate your capital well. It will also help you to know when to enter and when to leave a trade. He also meant that there will always be times when the market crashes and times when it recovers. In the past, there have been significant cycles such as the South Sea Bubble, the Tulip Mania, the great depression and the 2008 credit crisis. In future, these cycles will still come. Hedge Fund manager, Ray Dalio has also written about this in the How the economic machine works.

#2 – Don’t Trade

The next key lesson from Jesse Livermore is not to trade at all. Why am I telling a trader not to trade? The fact is that most new traders feel pressured to trade all the time. This is wrong because as I have mentioned before, too many trades are usually wrong. Remember, too much of everything is poisonous. Livermore advised people to trade for a few times a day. He also advised people not to trade when their instincts were not aligned to the market.

#3 – Start Early and Practice

The next lesson from Jesse Livermore was on the need to start trading early. As mentioned above, he started being involved in trading as a 15-year-old kid. By starting this early, he was able to get involved in the market and know how it worked. He started trading the bucket trades which was one of the earliest forms of day trading. He mastered the art and became a real pro by taking risks and practicing.

#4 – You Can’t Tell Unless You Bet

A few years ago I took a break from trading. This was because I had made a huge loss. I took a break for more than one week. Afterwards, I decided to go back to the game. I stared at the charts for hours without taking the huge risk of trading. The fact is that I couldn’t make my money back without trading. As a trader, you will go through these stages as well. While its good to take some time off, you should not panic. Remember, even the best traders lose money.

#5 – Hope for Profits and Fear Losses

Of course every trader hopes that their trades will make them money. You should always hope that your trades will turn a profit and fear the losses that could come. Doing this will help you mitigate losses. One way of mitigating this is by placing stop losses in the most appropriate places.