29th October, 1929 .a.k.a “The great depression.” It was during this day that the nation went into abyss. Billions of dollars were wiped off by the stock market crash. Dow Jones Industrial Average (DJIA) had plummeted by marking its single largest decline in history. The nation saw its one of the worst financial crisis to be known up till then. Even the famous money managers like Benjamin Graham lost most of their capital. However, very few stock traders/investors survived the day and the only handful of them could celebrate the joy of the profits that they earned.
Jesse Livermore was one of the few stock traders who predicted the market downturn and shorted the stocks. This resulted in him making close to $100 million (approximately $1 billion today) in ONE SINGLE DAY.
Jesse Livermore started his trading days at the age of 14, where he was appointed as the chalk boy for Pain Webber, stockbroker firm. His job to report the prices of the stock and commodities prices on the quotation chalkboard. Working as a young chalk boy in a stock brokerage firm, he gained some knowledge about the workings of the stock market and made his first bet at a bucket shop.
He profited around $3 – $5 on his capital and soon later, out-earned the Pain Webber’s profit. Bucket shops were brokerage houses which usually dealt with stocks, securities and commodities that took positions against the customers’ orders and profited from the difference in price from market trends. This resulted for customers to gamble in the market with very thin margin and booking positions against brokerage houses. However, Jesse pioneered the trading rules with the bucket shop and soon earned handsomely against these trading brokerage houses.
As a result, he was debarred from these trading houses for out-earning against the brokering houses but it didn’t stop him. He still tried to sneak in by creating a fictitious name and creating altogether another personality but couldn’t survive for long. It was during this time that he decided to shift to New York and try his theory in the bigger markets. As little did he know, he couldn’t survive the markets for long and his trading rules burdened him with loses.
What makes it exciting to know to about is not because of the profits that he produced with his trading rules, but the polarity of success that he faced. During his career as a professional trader, he declared bankruptcy twice burdened with heavy loses but still came out to become one of the richest of them all. Having a high emotional IQ was one of the qualities that made him stood as compared to others which changed his view of looking loses altogether.
Jesse Livermore strategy was based on trend following system. Trend strategy is a trading strategy in which one believed to trade on stocks as the price rose and sell off when the price trend was in the downward direction. It believed it in working on time frames and to determine the direction as which the price action is taking place by considering the indicators like moving averages and channel breakout. Trend following strategies turned out to be profitable twice, in the panic of 1907 as well as the great depression of 1939.
Here are some of the quotes that he passed to future traders
“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
“Buy rising stocks and sell falling stocks”
“Do not trade every day of every year.”
“Trade only when the market is bullish or bearish”
“Only enter a trade after the action of the market confirms your opinion and then enter promptly”
“Continue with trades that show you a profit, end trades that show a loss”
“End trades when it is clear that the trend you are profiting from is over”
“In any sector, trade the leading stock – the one showing the strongest trend”
“Never average losses by, for example, buying more of a stock that has fallen”
“Go long when stocks reach a new high. Sell short when they reach a new low”
“Don’t become an involuntary investor by holding onto stocks whose price has fallen”
“Markets are never wrong – opinions often are”
“Wishful thinking must be banished”
“It is much easier to watch a few than many”
Follow Us @
Some Unrelated Stories!
