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5 Stock Market Lessons From Jesse Livermore

19 September 2018  |  Education
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He’s been described as the greatest stock picker of all time. And stories about his trading prowess, which was well-documented in the book ‘Reminiscences of a Stock Operator’, remain the most quoted and often cited by investors and traders alike.

Of course, I’m talking about Jesse Livermore, ‘The Boy Plunger’ – an American trader and investor born in 1877 who became famous by making and losing huge fortunes trading the stock and commodity markets in the late 1800’s and early 1900’s. He must have led one of the most colourful and eventful lives of all time as a stock trader and investor. Even today people draw inspiration and insights from his experience.

At age 14 Livermore started work as a quotation-board boy in a stock brokerage company. That was when stock prices used to be hand-written on huge boards instead of showing up on the computer screen.

Livermore became fascinated with how prices move up and down and employed his good memory for numbers to start monitoring and working out the ‘behaviour of prices’.

Instead of a trading or investment app, Livermore used a little book where he recorded the price movements. He monitored how the prices moved up and down for months on end and tried to see patterns and repetitions in price behaviour.

His first trade came as a tip from an older officemate who asked if he would like to buy into Burlington stock. After checking his records on Burlington, Livermore did his first trade. After 2 days he cashed in on his profit of $3.12. That would have been a considerable amount for a 14-year-old of the time.

By the time he was 15 years old, Livermore made his first thousand dollars, which he laid in front of his surprised mother. His mother couldn’t believe that a young lad could make so much money. Livermore’s $1,000 in 1891 is equivalent to almost $30,000 today.

The book Reminiscences of a Stock Operator detailed Jesse Livermore’s trading and investing strategies and techniques that made him one of the most legendary personalities in the trading and investment world.

His trading and wealth creation strategies were critical in his success and ability to recover from hefty drawdowns during his decades of share trading. Although he was active many decades ago and made most of his fortune in the early 1900’s, Livermore’s trading and investing insights remain relevant today.

Here are the top 5 trading and investing lessons from Jesse Livermore:

Lesson #1: He Kept His Business (trading) to Himself

Though this may be difficult to do in today’s social media dominated environment where people share the minutest details of their daily lives, Livermore learnt to keep his trading business to himself.

He said: “I didn’t have a following. I couldn’t see where I needed to tell my business to anybody else. I’ve got friends, of course, but my business has always been the same – a one-man affair.

Lesson #2: Believe in Yourself And Your Judgement

You must believe in yourself and your judgement if you expect to make a living in trading/investing.

Livermore made many mistakes and went broke several times in his career, but he knew that he would still have another chance. His losses were never total and he was able to resume his trading again and again.

Lesson #3: Learn How To Sit Tight And Be Patient

Despite knowing that he had a system that worked and worked well most of the time, there were times that Livermore got into some trades that he knew he shouldn’t have. Of course, he lost money on some of those trades and eventually learned the value of sitting tight and being patient.

He said learning how to sit tight and be patient even if you’re winning is vital. “It was not my thinking that made the big money for me. It always was sitting tight. People who can be right and sit tight are uncommon. I found it one of the hardest things to do,” Livermore said.

Livermore was 20 years old when he made his first ten thousand and lost it. But he knew why. He said: “I traded out of season; because when I couldn’t play according to my system, which was based on study and experience, I went in and gambled.

This may sound familiar to many who try to force a trade even if there isn’t a trade to be made. This is also a warning to those who may be tempted to gamble and get into a trade even if there are not compelling reasons or signs for a good trade.

I never wanted to buy stocks too cheap or too easily.” After checking that the price is on the way up, he didn’t mind buying or adding to his positions, because that meant he was correct in his analysis of the stock. If the price continued to rise, that was a confirmation that he was right and he was happy to add more to his initial buy.

Stocks are never too high for you to be buying or too low to begin selling. But after the initial transaction, don’t make a second unless the first show you a profit. Wait and watch.

Lesson #4: Learn From Your Mistakes

Livermore, who also traded commodities, was upfront and openly talked about the mistakes he made during his trading and investing years. He said: “I have always found it profitable to study my mistakes.”

He didn’t always win. Not all his trades made him money. He had a plan/strategy for trading that would have been right 7 out of 10 times. Livermore said what beat him more than anything was when he did not have the brains to stick to his own game.

He said: “There is a Wall Street fool who thinks he must trade all the time. Learn to sit still and be patient when there is not a trade to make. You don’t have to be trading all the time.

Lesson #5: Develop And Work On Your Trading And Investment Skills

According to Livermore, the training of a stock trader is like a medical education.

Observation, experience, memory and mathematics – these are what a successful trader must depend on. He must not only observe accurately but remember at all times what he has observed.

Experience and memory are vital – and are the big difference between the professional and the amateur trader. And this cannot be overemphasized,” he said.




This article was written by Alex Douglas, Managing Director of Monex Securities Australia (AFSL: 363 972), part of the Monex Group Inc. and published by Rask Media (https://www.raskmedia.com.au) on 13/09/2018


The content of this article is given for general information only. As general information, no consideration or evaluation is given to the investment objectives or financial situation of any particular person. Trading and investing involve substantial financial risk. All readers of this article should make their own evaluation of the merits and suitability of any financial products and/or advice or seek specific personal advice as to the appropriateness of engaging in any activity referred to in this article in light of their own particular financial circumstances and objectives. 



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