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Jesse Livermore

Day trading pioneer

Jesse Livermore can be identified as one of the famous traders of all time. He was born in 1877 in Shrewsbury, Massachusetts, United States, and died in 1940, Manhattan, New York, United States. Livermore was from a very poor family, and he had to move to the town of Acton, Massachusetts, when he was very young. At the age of three and a half, he was able to read and write. He had to quit the school at the age of 14, as his father put asked him to work on the farm, but he was able to escape from the house with the help of his mother. He started his first job by posting stock quotes in Boston. He was given a wage of $ 5 per week. The success of Jesse is remarkable, as he used his strategy and his funds. He did not use the capital of the others in the process of trading. It is not practicable to compare the modern market with the previous market, which Jesse used to trade. Those days the markets were thinly traded and the moves were volatile.  There are several unique patterns in the trading pattern of Jesse. He married three times and he committed suicide due to the decline of his assets and the inability to face the challenges of the career. In his life, he has faced bankruptcy three times. He is one of the legendary figures of Wall Street.

Edwin Lefèvre, was an American journalist, writer, and diplomat. He is most noted for his writings on Wall Street business. He wrote a book on Jessie in 1923. It was named as Reminiscences of a Stock Operator. The book recommended as one of the texts that every trader must read before starting their career. In 1940 he wrote the book How to Trade in Stocks: The Livermore Formula for Combining Time Element and Price. He was at his peak in 1923, and at that time he had a wealth which is about $ 100 million, which equates to $ 1.5- 13 billion.


The method of trading of Jesse Livermore:

Jesse started and flourished before World War 1. In that period, science and technology have not developed as today we can witness. Modern traders have so many tools and applications that can help to make his decision easier. Jesse had nothing but he was able to predict the way of the market. Jesse has paid his attention to two elements in the process of trading. There are two main factors.

     ·         The test of the time

     ·         Price pattern

Both factors are still applicable to the process of trading.

The exact timing is very important, and every trader is aware of that. Timing that is a little too early or a little too late cannot help the trader to obtain the maximum profit of his investment. According to Jesse Livermore, the investor has to wait for the exact moment, though how much he feels that the time is ready for the move. The investor must have a plan which predicts the exact time of his move, so he has to stick to the plan, rather than carried away by the impulses. When the time is ready, the trader must make his move swiftly.

As one of the traders in the recent past, Jesse did not have the opportunity to use the modern daily-charts and graphs to predict the current pattern of the prices. He had a ledger that he has used to take down the prices of the shares at that time. Jesse prefers to trade the stocks which move in a trend, and he did not like to trade the stocks which are from ranging markets. When the price of financial instrument registers similar highs and lows in several occasions, the market can be identified as ranging. When the respective price hits the same support and the resistance three times, the market can be considers as ranging. Jesse waited for the prices to reach their optimum point and then he observes the behavior of the respective process further before sell or buy. Although he did not trade ranges, he usually traded breakouts from the ranging markets.

To determine the trade kept open Jersey applied a combination of price patterns and the volume analysis, to judge whether he was in the correct position. Jesse’s have employed the following features:

      ·         The increased volume at the breakout point

      ·         Whether the breakout prices move in the breakout direction

      ·         After the end of the usual reaction, again the volume increases towards the direction of the trend

Jesse identified the deviations from these as the indicators of warning. The necessary trading strategies were applied by considering the situation.

Timing the market

All the traders are aware that, the exact timing is very important. The minute change of the identification of the correct time is disastrous for the decision of the trading. In other words, timing is a critical factor in the finical markets. Price offers the best indication of timing.

Trading rules

These are some simple trading rules. Some of them are nearly a hundred years old, and Jesse’s have contributed to some of them.

·         Follow the trend, buy when the market is bull, and sell when it becomes a bear market

·         Search for clear opportunities before trading

·         Employ the pivotal points intruding

·         Be patient when entering the market, one can earn big money with a little patience

·         Close the losing trades and select the profitable trades

·         If the profit is doubtful exit the trade

·         Select the leading stocks in each sector(strongest in the bull market and the weakest in the bear


·         Select a limited number of stocks

Jesse’s strategy 

He was highly successful on many occasions, and he also lost on several occasions. It is his good practice to admit the mistakes, at the very first moment. These are 2 elements for his loss

·         The trading rules were not properly followed

·         The trading rules were not followed at all


He was just 15 years old when he started his career. He used to bet at bucket shops at that time. It is a place where investors had the opportunity to take the leveraged bets on the respective stock prices, but they cannot purchase or sell stocks at the bucket shops. It was 1892 and he bet $ 5 on Chicago, Burlington, and Quincy Railroad and he was able to earn $ 3.12 as the profit. he was able to secure more and more winnings at the bucket shops. When he was 16 years old he has decided to give up his job and start his career as a full-time investor. His full-time trading has become a success, and he has given $ 1’000 to his mother, who refused to take that money, as she considered it as gambling money. His regular winning strategy became a trouble to the bucket  shops, so they barred him from betting at their places. Jesse Livermore carried out his work in disguise, but soon he has decided to go to Wall Street. He initiated his practice in Wall Street with his savings which is about $ 10’000. The Ticket tape was a tool that was used by the traders to take decisions, but it was not updated regularly. As a result of that Jesse was lost. Then he decided to go to St. Louis and bet at the bucket shops. The year 1901 has brought success. He was 24 years old young man at that time. By using $ 10’000 he bought the stocks in the Northern Pacific Railway and he was able to turn his money into $ 500’000. It was the changing point of his life.

In 1906 he was on a vacation in Florida he took a massive short position in Union Pacific Railroad. he bought it just one day before the San Francisco earthquake. The expected outcome of the trade is $ 250’000, but he has to bear a loss of $ 40’000 as a result of incorrect advice from one of his friends. He has advised Jesse not to close his positions, as a result of that Jesse has to receive a profit with certain loss.

The Panic of 1907 made him a more successful trader than the past, as he was able to receive $ 1 million in one day by making huge short positions. In the meantime he has become one of the rich characters in society, so he has decided to enjoy life. He purchased a yacht at $ 200’000, a rail car, and a luxury apartment on the Upper Westside. He spent his time in exclusive clubs and with mistresses. Jesse decided to buy cotton as a result of the instruction of Teddy Price. He purchased, but his friend sold his stocks secretly. Jessy has to face bankruptcy but was able to recover all his losses. He filed bankruptcy again in 1915.

Jesse Livermore is one of the predictive traders. After the world war1. He cornered the market in cotton very carefully and secretly. His move was highly impacted the economy and he was summoned to the White House by President Woodrow Wilson. As a result of then Jesse agreed to sell cotton at break even, it has diluted the risk of rising the price of cotton During 1924-1925 he carried out market manipulation and secured $ 10 by trading wheat and cotton.

Jesse has to use another strategy in trading short positions in 1929. He employed more than 100 stockbrokers to conceal his actions. He was down over $ 6 million by the spring, The Wall Street crash of 1929 helped him to cover about $ 100 million. He was nicknamed as the "Great Bear of the Wall Street" by newspapers. The public has accused him of the crash and Jesse has to hire armed guard, as he was threatened to life by unknown parties.

Eventually the good time of the Jesse Livermore begun to decline. The main reason is the decline of his mental health. There were several reasons for this.  The first thing is based on his family life. He was divorced for the second time in 1932, and his son was shot by his wife in 1935. Though it was not fatal, it has brought a lot of agony to the trader. The lawsuit of this former Russian mistress has made things worse for him. The newly imposed policies of the U.S. Securities and Exchange Commission in 1934 severely impacted his process of trading. This impact has become the main reason for declining his gains. It is not clear, but he was bankrupted for the third time in 1934. His assets were about $ 84’000 and he has to pay $ 2.5 million as debts. Chicago Board of Trade cancelled his membership on March 7, 1934. He paid his tax bill of $ 800’000 in 1937. The great trader did not give up. He started a financial advisory business in 1939. He established it for selling technical analysis systems for the traders.

Personal life

Jesse Livermore was a good reader and his favorite book was Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. He was fond of outdoor activities such as yachting, fishing, etc. Once he was able to catch a swordfish which was more than 436 pounds.

He married three times but he had only two children. He married Netit Jordan in 1900, when he was 23 years old. The marriage lasted less than a year. As a result of a personal dispute, they had decided to separate and they divorced legally in 1917.

In 1918 he, married again. He was 40 years old and his bride was 22 years old Dorothea Fox Wendt. They had two sons, and they are Jesse Livermore Jr and Paul. The elder was born in 1919 and the younger was in 1922. In 1931 Dorothy filed divorce and they legally separated in 1932. She kept two sons in her custody and was able to receive $ 10 million as a settlement. She sold the house at Great Neck and it was torn down later. Jesse loved this house a lot and it made him more depressing. The third marriage took place in 1933, and Jesse was 56 years old. This time he married 38 years old singer. She was Harriet Metz Noble. She met Jesse on one of these vacations. He was her fifth husband. ironically, two husbands of Metz had committed suicide. One husband was Warren Noble, a trader.

End of the trader

It is coincident that Jesse too had to suicide. He shot himself in one of his favorite hotels on November 28 in 1940. The police found a suicide note of this great trader. It was an eight-paged text and he addressed it to his wife Harriet. He has mentioned the reason for his act. It was frustration, as a result of constant failures in the career. It is sad to mention that his son Jesse Livermore Jr committed suicide in 1975 and his grandson also committed suicide.

Quotations of Jesse Livermore

·         “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 clearly 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”

·         “The highest profits are made in trades that show a profit right from the start”

·         “No trading rules will deliver a profit 100 percent of the time”

·         “As long as a stock is acting right, and the market is right, do not be in a hurry to take profits”

·         “Never buy a stock because it has had a big decline from its previous high”

·         “Never sell a stock because it seems high-priced”

·         “The human side of every person is the greatest enemy of the average investor or speculator”

·         “Wishful thinking must be banished”

·         “Big movements take time to develop”

·         “It is not good to be too curious about all the reasons behind price movements”

·         “It is much easier to watch a few than many”

·         “Patterns repeat, because human nature hasn’t changed for thousands of years”

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