Jesse Livermore’s Trading Rules

Good stuff from Jeff Saut of Raymond James this morning
.  It this morning’s missive he discusses a bit of the Livermore approach, the famous trader from the early 1900’s.  I don’t agree with everything that Livermore writes here, but it’s nice to accumulate the understandings based on people’s past experience so you can take from it what helps your process the most.

Jesse Livermore’s Trading Rules Written in 1940

  1. Nothing new ever occurs in the business of speculating or investing in securities and commodities.
  2. Money cannot consistently be made trading every day or every week during the year.
  3. Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion.
  4. Markets are never wrong – opinions often are.
  5. The real money made in speculating has been in commitments showing in profit right from the start.
  6. At long as a stock is acting right, and the market is right, do not be in a hurry to take profits.
  7. One should never permit speculative ventures to run into investments.
  8. The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.
  9. Never buy a stock because it has had a big decline from its previous high.
  10. Never sell a stock because it seems high-priced.
  11. I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction.
  12. Never average losses.
  13. The human side of every person is the greatest enemy of the average investor or speculator.
  14. Wishful thinking must be banished.
  15. Big movements take time to develop.
  16. It is not good to be too curious about all the reasons behind price movements.
  17. It is much easier to watch a few than many.
  18. 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.
  19. The leaders of today may not be the leaders of two years from now.
  20. Do not become completely bearish or bullish on the whole market because one stock in some particular group has plainly reversed its course from the general trend.
  21. Few people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Nils

    What don’t you agree with, and why?

  • Boston Larry

    I can’t argue with this one. Strongly agree with it: “2.Money cannot consistently be made trading every day or every week during the year.”

    But I don’t always agree with this: “5.The real money made in speculating has been in commitments showing in profit right from the start.”. Counter-example: Those who bet heavily against sub-prime mortgage securities early on initially lost money. But those who persevered and waited it out made huge profits.

  • Ilya

    Larry, most speculation is done on margin. That’s why profit path is so important. There is no “eventually right” in a margined trade. You lose all capital and do not participate in recovery. The only way to avoid it is to trade instruments that do not wipe you out in the process. Buy and hold without leverage is one such strategy in equities for example. In credit or commodities such strategies are harder to create

  • Alberto

    On November 28, 1940, Livermore shot and killed himself in the cloakroom of the Sherry Netherland Hotel in Manhattan. The police revealed that there was a suicide note of eight small handwritten pages in Livermore’s personal notebook. It was reported in the November 30 issue of the New York Tribune.[13] The press wanted to know what it said, and the police tersely responded: “There was a leather-bound memo book found in Mr. Livermore’s pocket. It was addressed to his wife.” A police spokesman read from the notebook: “My dear Nina: Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie”.


  • marketfowl

    I like #15 – big movements take time to develop.

  • Nils

    Certainly a colorful character. I read his wive had 4 other husbands before him and every single one committed suicide.