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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Jesse Livermore is perhaps the most quoted trader in stock market historyLivermore Quotes Trading Truths Jesse Livermore is perhaps the most quoted trader in stock market history. The extensive quote section that follows has been organized by categories that align with the structure of this book. They should be helpful to all traders. ANTICIPATION By constant effort I was able to bring my records into a co-ordination that aided me to a surprising degree in anticipating coming movements. To invest or speculate successfully, one must form an opinion as to what the next move of importance will be in a given stock. In order to anticipate correctly, one must have a definite basis for that anticipation. It was not until I began to take into consideration the time element that my records really became useful in helping me to anticipate coming movements of importance. Just as soon as you familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements . I do know a basis for anticipating future movements and if anyone will study these records, keeping them themselves, they cannot fail to profit by it in their operations. This sense of knowing when you are wrong even before the market tells you becomes, in time, rather highly developed. It is a subconscious tip-off. It is a signal from within that is based on knowledge of past market performances. I am always suspicious of this inner mind tip-off and usually prefer to apply the cold scientific formula. But the fact remains that on many occasions I have benefited to a high degree by giving attention to a feeling of great uneasiness. This curious sidelight on trading is interesting because the feeling of danger ahead seems to be pronounced only among those sensitive to market action, those whose thoughts have followed a scientific pattern in seeking to determine price movements. From these records one can visualize a map useful in determining the approach of important price movements. BUYING Do not buy a stock because it has had a big decline from its previous high. It may surprise many to know that in my method of trading, when I see by my records that an upward trend is in progress, I become a buyer as soon as a stock makes a new high on its movement, after having had a normal reaction. I never buy on reactions or go short on rallies. Each succeeding purchase must be at a higher price than the previous one. When your chosen stock reaches the point you had previously decided it should reach if the move is going to start in earnest, that is the time to make your first commitment. So it is plain to see why your friend, the industrialist on the inside, can easily tell you when to buy. But he cannot and will not tell you when to sell. That would be equivalent almost to treason to his associates. GROUP ACTION/LEADERS That break-out to a new high movement (the stock will be selling in new high territory) should continue strong for a few days with only minor daily reactions. Sooner or later it will reach a point where it is due for another normal reaction. When it (the normal reaction) occurs, it should be on the same lines as the first reaction, because that is the natural way any stock will act when it is in a definite trend. Familiarize yourself with a stock, or different groups of stocks, and if you figure the timing element correctly in conjunction with your records, sooner or later you will be able to determine when a major move is due. What I wish to impress upon you is the fact that when you clearly see a move coming in a particular group, act upon it. Have patience and wait. In time you will get the same tip-off in other groups that you received in the first group. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole. In the course of time new leaders will come to the front; some of the old leaders will be dropped. It will always be that way as long as there is a stock market. Remember the leaders of today may not be the leaders two years from now. It is when you set down prices in your record book and observe the patterns that the prices begin to talk to you. I would explain that I do not take the action of a single stock as an indication that the trend has been positively changed for that group. LOSSES Traders often hesitate as a stock declines, and during that period of hesitation they watch the market go many points against them. Profits always take care of themselves, but losses never do. The speculator has to insure himself against considerable losses by taking the first small loss. It would be simple to run down the list of hundreds of stocks, which, in my time, have been considered gilt-edge investments, and which today are worth little or nothing. Thus, great investments tumble, and with them the fortunes of socalled conservative investors in the continuous distribution of wealth. I believe it is a safe statement that the money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride. A good trader will, by acting promptly, hold his losses to a minimum and await a more favorable opportunity to reenter the market. It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let that thought be written indelibly upon your mind. But it is not necessary to lose your money, once you have acquired it, if you will hold fast to sound principles. Every time I lost patience and failed to await the Pivotal Points and fiddled around for some easy profits in the meantime, I would lose money. My loss was due wholly to lack of patience in awaiting the proper time to back up a pre-conceived opinion and plan. The market will tell the speculator when he is wrong, because he is losing money. When a trader first realizes he is wrong, that is the time to clear out, take his losses, study the record to determine the cause of the error, and await the next big opportunity. MARKET ACTION Markets never stand still. They are very dull at times, but they are not resting at one price. They are either moving up or down a fraction. At the beginning of the move you will notice a very large volume of sales with gradually advancing prices for a few days. Never be afraid of the normal movement. But be very fearful of abnormal movements, it is similar to a major change in personality. Short-term traders are often so engrossed with the minor ups and downs that they miss the big movements. Almost invariably the vast majority have commitments on the wrong side when the broad trend swings are well under way. The speculator who insists on trying to profit from daily minor movements will never be in a position to take advantage of the next important change marketwise when it occurs. Real movements do not end the day they start. It takes time to complete the end of a genuine movement. Dont back your judgment until the action of the market itself confirms your opinion. . . Markets are never wrong opinions often are. You will notice I always tried to make my first trade at the psychological time, that is, at a time where the force of the movement was so strong that it simply had to carry through. Your trade may grow into a very large profit, and as long as the action of the market does not give you any cause to worry, have the courage of your convictions and stay with it. I do not use the words bullish or bearish in defining trends of the market because I think so many people when they hear the words bullish or bearish spoken of marketwise immediately think that is the course the market is going to take for a very long time. Well-defined trends of that kind do not occur very oftenonly once in about four or five years but during that time there are also many welldefined trends which last for a comparatively short time. I consequently use the words Upward Trend and Downward Trend, because they fully express what is going on at that specific time. The Livermore Stock Trading Method, my method, of recording prices in conjunction with the time element is the result of over thirty years of study of principles that would serve me in forming a basic guide for the next important market movement. Frequently I had observed that when a stock sold at 50, 100, 200 and even 300, a fast and straight movement almost invariably occurred after such points were passed. Bear in mind when using Pivotal Points in anticipating market movements, that if the stock does not perform as it should, after crossing the Pivotal Point, this is a danger signal that must be heeded. I learned the main thing was to watch the follow-through as it crossed through the Pivotal Point. I knew that in due time, when the upward trend had reached its Pivotal Point, I would be given a danger signal in ample time. Whenever the market does not act right or in the way it should, that is reason enough for you to change your opinion and change it immediately. |
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