“A stock operator has to fight a lot of expensive enemies within himself.”– Jesse Livermore
During the crash of 1929, one trader stood above the rest. Jesse Livermore was one of the few who foresaw the crash and leveraged that market awareness into gains of $100 million.
Five years later, he filed for bankruptcy after squandering the fortune of a lifetime trading.
How did it happen?
As Old saying says Learn from the mistake of other so as you do not have to repent again. Jesse Livermore was a pioneer in the trading world. He was one of the very first trend traders, rule based discretionary traders, and traders of pure price action. He was a trail blazer as many consider his the best stock trader of all time. Fact is he committed suicide and died almost penniless. So what lead to the downfall of great traders of all time. Lets learn from this and apply in our trading so as to emerge as WINNERS.
- Letting losers run: Many times he did not cut his losses. “I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.” – Jesse Livermore
- Lack of Discipline: In his writings he seems to always hint that he had trouble following his own rules and advice and lost money when he didn’t follow his own plan.
- Following tips: “Gradually, as I began to accept his facts and figures, I began to fear I had been basing my previous position on misinformation. Of course I could not feel that way and not cover. And once I had covered because Thomas made me think I was wrong, I simply had to go long. It is the way my mind works.” “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.” – Jesse Livermore
- Over Trading: “What beat me was not having brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.” – Jesse Livermore
- Position sizing: The sheer size of his astounding wins at key times shows that he did not really have a position sizing model to limit his exposure to risk, he was likely all in with leverage on his biggest wins. Which results in inevitable account blow ups.
- Lavish lifestyle: Livermore spent money lavishly on his lifestyle with mansions, vacations, and the best things money could buy. He had no number that allowed him to ever really retire and enjoy his wealth. He continued to trade with full size and aggressively through his career.