A Timeless Lesson from Jesse Livermore

We love a lot about Jesse Livermore because of his zen like approach to trading. Our core investment trading philosophy here at BotTrigger is predicated around this very similar approach of position trading. We prefer the long trade over the quick trade where we can hold for months at a time.

Jesse Livermore, the legendary trader who started from scratch and traded his way to a fortune of more than $100 million by 1929, offered traders many invaluable lessons on discipline, focus, and following the market’s trend. Livermore would admit that he ultimately had trouble following his own advice, which makes it all the more important that traders today continue to remember his lessons.

One of my favorite stories from Livermore was included in his classic book, How to Trade in Stocks. If only more people would follow this advice today…

Many years ago I heard of a remarkably successful speculator who lived in the California mountains and received quotations three days old. Two or three times a year he would call on his San Francisco broker and begin writing orders to buy or sell, depending upon his market position. A friend of mine, who spent time in the broker’s office, became curious and made inquiries. His astonishment mounted when he learned of the man’s extreme detachment from market facilities, his rare visits, and, on occasions, his tremendous volume of trade.

Finally he was introduced, and in the course of conversation inquired of this man from the mountains how he could keep track of the stock market at such an isolated distance.

“Well,” the man replied, “I make speculation a business. I would be a failure if I were in the confusion of things and let myself be distracted by minor changes. I like to be away where I can think. You see, I keep a record of what has happened, after it has happened, and it gives me a rather clear picture of what markets are doing.

“Real movements do not end the day they start. It takes time to complete the end of a genuine movement. By being up in the mountains I am in a position to give these movements all the time they need. But a day comes when I get some prices out of the paper and put them down in my records. I notice the prices are not conforming to the same pattern of movements that has been apparent for some time.

“Right then I make up my mind. I go to town and get busy!”

That happened many years ago. Consistently, the man from the mountains, over a long period of time, drew funds abundantly from the stock market. He was something of an inspiration to me. I went to work harder than ever trying to blend the “time element” with all the other data I had compiled. By constant effort I was able to bring my records into a coordination that aided me to a surprising degree in anticipating coming movements.

This story from Jesse Livermore illustrates the same essential point that Nicolas Darvas often made when he said he traded best when he was traveling around the world, far away from Wall Street. Darvas found that when he was too close to Wall Street, he would be inundated and influenced by all the noise, opinions, and panic from other traders.

Livermore sums up his point best with the following statement: “Remember this: when you are doing nothing, those speculators who feel they must trade day in and day out are laying the foundation for your next venture (trade). You will reap the benefits from their mistakes.”

Sometimes, the best trade you can make is no trade at all. Remember that there are times when you need to remove yourself from all the day-to-day Wall Street noise and focus on the BIG picture trends.

That’s where the big money is made.