This is a story of a “Boy Trader” who started trading the markets at the age of 14 and made a profit of more than $1000 (that too in 1915) from trading within a year. He left his quotation boy job at the age of 15 to start trading full time at the trading shops (better known as Bucket shops). He kept on plunging in big lines of stocks in big quantities at different shops (where he was allowed to trade) and became familiar to everyone as the “Boy Plunger” or “Boy Trader“. A profitable trader is a bad business for the trading shops so he had a rough time trading at these shops as they stopped accepting his trades.
In his early 20`s, he started to trade with big brokerage houses like cosmopolitan and became one of the biggest trader the firm had. He developed his understanding and knowledge of the markets which helped him made big million of dollars and later became the greatest speculator of the wall street.
He was Jesse Livingston Livermore.
The Boy Trader
Started his job as a quotation board boy at the age of 14. The boy writing out stock prices on the board felt that these prices are not mere prices rather they are number which represents something as they were changing and changing all the time. He got the feeling that they are changing all the time because of some reason. So, he started keeping a mental record of behavior of stocks to anticipate the future movements and find out whether they repeat in the similar fashion in the future.
Trading Lesson –
Record Keeping – An Important Tool for a Traders Success.
“Importance of understanding the principle of discounting”.
“There are always reason for the changes and fluctuations but the tape does not concern itself why a stock move in certain way neither do I. The reason why a stock did something today may not be known for days or weeks or months.”
“The reputable newspapers always try to print explanations for market movements. It is news. Their readers demand to know not only what happens in the stock market but why it happens.”
His First Ever Trade
His work mate came to ask him if he has got any money to lend him to trade a stock tip he got to double his money. Even during his inexperienced days Livermore thought that i was not at all interested in doubling my money but this was an opportunity to testify my research. He checked his record book and find out that his analysis is also indicating a positive momentum in the stocks. So, they bought the shares at the bucket shop and sold out after two days and made a profit of more than $2. Then he was unstoppable.
“Don’t blindly intimate others. Always have a good reason to enter and exit any stock or market.”
The Boy Plunger
Trading shops stopped accepting his trades!
That 14 year old chap started to make more money from his trading in trading shop than his job. So he left his job. At age of 15, he laid down more than $1000 he made from trading to his mother for which his mother requested him to put that money in savings account but what he sees is “More Margin & More Margin means More Trading“.
He was making money from trading stocks at these trading shops which surely they didn’t liked and they stopped accepting his trades. So, he kept on trading at different trading shops and got familiar to everyone as “The Boy Plunger” or “The Boy Trader”.
“The chaps at the bucket shops seeing what a kid I was, always thought I was a fool for luck and that was the only reason why I beat them so often.”
His Hunch was his Driving Force
An incident happened with livermore when he had his short position on sugar and he started feeling uncomfortable with the trade and market movement. He started to question the fact why he should close out his position when he is not seeing anything wrong visible fact. But as time passes on his feeling becomes more strong.
So he slammed his tickets at the counter and asked the teller to closed his positions at last traded price 103 and at that very time sugar rises to 108.
He said, “If you start to feel uncomfortable with your trade or when the market don’t actually do what you expected. Get out soon and as early as possible. Don’t wait delays are dangerous. As sometimes you may not know why you are feeling indifferent and uncomfortable with your trade. But you have to listen to your core, your instinct, experience, your inner beliefs and specially your subconscious which knows more than you.. So get out soon. Hunch is above than all.”
How insiders wipe and shake out the traders?
For the same incident when he was in short trade of sugar and he squared his position at 103 and at that very time sugar rises to 108. He said this price drive could be manipulated and driven by brokerages to wipe of traders stop losses if they had more players trading on one side of the market. Whenever uncertain move happens with no followup they called it as the “bucket drive”.
Trading Lesson –
Day traders really find it difficult sometimes when the price shakeouts or false breaks trigger their stop losses and throw them out from the trade. This usually happens with day traders trading on leverage who uses very close and small stop losses.
The only solution is to trade as much as close to the psychological reversals. This will increase the probability of successful trade and that too with close and small stop losses.
Refine your Trading Plan – Entry Plan – Analyse on bigger chart and enter on small chart – Trading at the right place with give a trader a cushion to a trader to stay in long and comfortably with the trade.
“I have always made money when I knew that I am right well before I initiated my trade.”
Trading With Big Brokerage Houses
A Completely Different Game!
After all the trading shops stopped accepting his trades he started trading with the big brokerage houses like Cosmopolitan. He kept on trading long and short in big lines of stocks at the brokerage house and became the biggest trader the firm had. But later on he realized it to be a completely different game than it used to be at the trade shops which was the ultimate reason he gone broke the very first time and lost all the money he had.
Gone Broke the First Time
Earlier he was successful in bucket shops as he was getting the prices right as per the quotation board, i.e., the last traded price and he was trading in and out for few points. But at the brokerage house, It was different. He plunges for say a half a point but the difference in execution and quote price broke him.
Suppose, when the ticker showed him the price of say 105 for a stock and he asked the broker to buy say 10,000 shares at the market price. But the actual price at the floor must be different than the ticker showed. So when his trade executed the price must be 106. But he kept on trading in bigger lines at the market price without thinking of the execution front. Even his own trading in the big quantities also forces the price to move up and down.
But at bucket shops, no such impact of quantity on price and was trading at the last traded price.
So, his own ignorance and technical flaw forced him lost all his money and gone out of trading and now was in dues.
His Comeback after getting Broke the First Time
After suffering the losses in the brokerage house, he spotted the problems with his trading and find it as a different play than he was trading earlier at bucket shops.
So he took a $500 loan from the owner of the brokerage house and gone to saint Louis for trading at the bucket shops. He started trading conservatively with $500 with a new name and in small quantities pretending so that no one knows he is the same boy trader and within two days he converted his $500 into $2800. The trading shops got to know about him and stopped accepting his trades. So he had to leave the place and he came back to New York to trade again and paid back his $500 loan.
Trading Lesson –
“Refine your trading plan continuously”
“Analyse why you had a loss, what mistakes you committed, and find out how the same can be prevented”
Gone Broke the Second Time
Tape Double Cross Him!
After getting back to New York, he again started trading and the tape again fooled him. He was trading the active stocks in and out but again the execution beats him. On one day, He lost 35 points in a single trade in a stock trading at $100. He traded short at $100 and got the execution at $80 which he felt the price for a person to be in for buy. So he asked his broker to cover his short position at the market price and got the execution price 15 points above the quotation price and he lost some 35 points in a single day and lost all the money he had. And again gone Broke. The execution beats him as he always traded at the market price and not the limit price.
Livermore – “From a Boy Plunger to a Real Trader – A Trading Legend”
His Comeback after getting Broke a number of times!
Started as a day trader looking for small margins trading day and day out. Got wiped out of the market a number of times sometimes because of his own human weakness (trading on excitement) and technical reasons (different prices on ticker board and actual trades). He felt that now is the time for him to change his bucket shops trading methods and he started to analyze and see the market in the bigger ways. He transformed himself into a Real Trader or a Legend – waiting patiently for weeks or months for a stock to come to right price before initiating a trade. He even get the stock ticker from the brokerages who had direct wires to his office in new York to take care of his execution issues.
“It was the game that taught me the game. No man can always have a reason to trade daily. The traders thinking that they should make money everyday and every time is one of the biggest cause of the failure of traders on wall street and around globe.”
Trading Right & Sitting Tight
Livermore after getting broke a number of times started to feel that the big money cannot be made in the individual moves but in big moves. He even came across a old guy who use to say all the time “its a bull market you know” whenever someone asks him for a tip or when people would advise him to sell his holding and buy on corrections. Then he realized that how wise that man is and how Livermore while being right so many times didn’t made it big. He said there are a lots of early bulls in bull market or bears in bear market but they made no real money as even if you are right you cannot go rich by making 4 point profit in a bull market. Its always important to understand temporary corrections and withholding with big paper profits to sit tight and wait.
“Not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish.”
Trading Lesson –
Always enter for the big moves rather than the short one, as a genuine move do not get over on the day of its start.
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! Men who can both be right and sit tight are uncommon.
How he made his Biggest Profit of $2,50,000 on his Hunch?
Livermore was on holiday with one of his friend and the market and stocks were going up up and up as the bull market was underway. They stopped at the trading counter and checked on the prices of market and stocks.
Livermore after watching the tape for sometime thought that the stock Northern Pacific is behaving in a different way than the market, so he felt that the stock is going to go down. So he sold short the stock for which his friend said why you are playing stupid when all the market is going up. After the stock behaved as he felt so, he sold short 1000 more shares and again 1000 then again 1000. Then the stock kept on cranking and livermore kept on pyramiding down for few days by shorting 2000 more, then 5000 then 10000 shares. Came a big break and he made $2,50,000. His trading on his hunch, pyramiding rule and sitting tight made him a profitable trader.
Trading Lesson –
Pyramiding is the key to the Trading Success – Increase positions with the rising profits. Don`t average a Loss. Always buy or sell more whenever your trade shows you a profit and keep selling & buy more with the move. But a good pyramid always need a right entry at the right place. So it starts with your trading plan (Trading Capital, No. of trades, Capital protection, Entry Plan, Sitting in, Pyramiding & your Exit plan)
Trading at the Right Time
Patience to enter and exit the market has always helped a trader to have an added edge in Trading. He said after forming a opinion about a stock, do not be too much impatient to enter into it. Wait for the right indication to enter into a trade. So, for any trader entering and exiting a trade at the very right time is crucial for his success as a speculator. Entering at the right time at the right place and surely at the right price gives a psychological advantage to a trader.
If you are a bear in the bear market well and good but timing has to be right. Not soon not to late..
Trading Lesson –
Refine your Entry & Exit Plan – If a trader had a right entry then he will have no fight with his positions. He can then sit tight. If not he will get into a struggling arena to stay in. So either he will get out very soon on his own or will be stopped out. Find out places where you should buy or sell or trade. How u can enter a place where there is no fight. Where market do not test and come back to your levels again and later entering and pyramiding on added confirmations.
No early & no late entry.
“When the stock you are trading doesn’t act as it should, quit. Don’t argue with the tape. Do not seek to lure the profit back. Quit while the quitting is good—and cheap.”
Quotes by Jesse Livermore
“There is a plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time.”
“In addition to trying to determine how to make money one must also try to keep from losing money. It is almost as important to know what not to do as to know what should be done.”
For More Quotes Visit: Jesse Livermore – The Millionare Boy Plunger
#1. Reminiscences of a Stock Operator By Edwin Lefevre
#2. How to Trade In Stocks, By Jesse Livermore
The only book even written by the Legend himself. In the book, he has outlined some of his trading rules and principles which helped him made millions from the market.
Use of pivotal theory to trade the stocks and Livermore key will help any trader understand the very simple but very rewarding trading system. He also detailed out reasons for some of his own personal trades in commodities and stocks. A MUST READ FOR EVERY TRADER.
You can buy the Books from the Amazon links mentioned above.
KNOWLEDGE IS POWER!