The Success Secrets of a Stock Market Legend Jesse Livermore was a loner, an individualist-and the most successful stock trader who ever lived. Written shortly before his death in 1940, How to Trade Stocks offered traders their first account of that famously tight-lipped operator’s trading system. Written in Livermore’s inimitable, no-nonsense style, it interweaves fascinating autobiographical and historical details with step-by-step guidance on: Reading market an…
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First things first. The most important thing to recognize about this book is that the majority of it (about 2/3) was not actually written by Jesse Livermore. It was written by Richard Smitten, a man who tries (and fails miserably) to create a sort of monologue of Livermore, complete with phony quotation marks, in which the great trader outlines his system. Having said that, Livermore’s actual writings are very interesting. The first few chapters of the book is a word for word transcript of Livermore’s original text, and contains much in the way of useful insight and helpful tips and information. The Livermore Market Key at the end of the book is also Livermore’s creation, and it, too, is useful in its own way.
The rest of the book is cobbled together by Richard Smitten, a man who seems to have made it his life’s work to piggyback on Livermore’s success in order to make a name for himself. Smitten took letters and interview transcripts and pieced together a phony Livermore monologue. It is unconvincing and a complete waste of time. The writing is abysmal, and Livermore’s concise points and techniques (from the first part of the book, the part Livermore actually wrote) are repeated over and over and befuddled to the point that you have to remember that it is not actually Livermore speaking. Smitten’s attempt to adopt Livermore’s style of conversation fails miserably, and the whole of his work is tedious to the power of ten. I couldn’t even get through it-I had to skip to the Livermore Market Key at the back.
The book also contains some shameless self-promotion in which Smitten attempts to peddle his biography of Livermore onto the reader and also his trading system, which he shamelessly claims will help you trade like the great legend. Smitten’s writing is so awful I would never even consider anything else written by him-his seeming inability to create a concise sentence without a run on and his ineptitude at using question marks when necessary waxes tiresome in a hurry. The best book about Livermore’s trading style is Reminiscences of a Stock Operator, and that book will get you closer to understanding the real Jesse Livermore than this drivel ever will. Aside from Livermore’s own words (the only redeeming factor here), this book is utterly useless.
Jessie!
First off the pictures are magnificent as far as seeing about Jessie’s life. Jessie took many millions of dollars out of Wall Street but he played for the game. He was up and down so often, and so high, that there was nothing left after the thrill was gone.
The antidotes on Jesse’s life are very entertaining but not much use to refining a traders technique. If he had died a few years sooner he would have been a hero. As it is people confuse this personal life with that of a great trader who just got tired.
The included “Livermore Secret Market Key,” reprint contains a wealth of information from Livermore’s own hand. If I did not already have it, Smitten’s book might have been useful.
Cycles!
Jesse mentions market swings from 5 to 20 points that take from a week to a month. It seems like Jesse is talking about what we now call cycles when he refers to the time element. Trading into the future.
Trends!
He talks about this idea that the best trades are those that show a profit right from the start. Therefore, by definition if a trade dips into a loss and violates your definition of what a trailing trend is, Speculators lose no sleep jettising it off right away.
Never permit speculative ventures to turn into investments. Involuntary Investors … make a bet, stay with it, and if it goes wrong, they lose it all, “they buy a stock that goes down, and they refuse to sell and take their loss.”
Trends work automatically, and consistently along certain lines. If you recognize a trend and wait to get in at the precise time, drawdowns should be at a minimum. The drawdown itself should flash a danger signal.
Pyramiding!
When your security is acting right you can safely add to your line from then forward.
One of the unique ideas that I may have overlooked in Reminiscences is that entering a trade a little late is a bit of added insurance.
There is a psychological value in drawing money out of your winnings. Something I just love to do.
Pivot Point!
There is allot in here about his Pivotal Point entry. However, unless you can get it out of the “Livermore Secret Market Key,” reprint contained in the book you will not find it in the “Smitten,” part.
Anyone can see where pivot points were, the psychological entry point can be determined when groups of other securities confirm the change in trend.
Double bottoms!
Jessie gets into what we now call a double bottom. The first bottom is the primary pivotal point the second bottom (or top) is what he calls the “Continuation Pivotal Point.”
CPR’s!
Jesse did early work on what we now call CPR’s. Closing Price Reversals. CPR’s often occur at the Pivotal Point.
He teaches us to only trade on pivot points. But then goes on to explain the benefits of Box-break outs, trading on new highs and new lows.
Livermore’s system of Sister Stocks is clearly explained and is a welcomed addition to Reminiscences. I wonder why Smitten did not show these as a spread?
Money Management!
Your position is defined as the percentage of your portfolio you will invest in any single situation.
Find your Pivotal Points and trade in the direction of the momentum. It is the big swing that makes the big money for you.
Jessie suggests averaging up, “within the pivot point range,” without defining what a “pivot point range,” is. It may be the center reaction in the W of a double bottom.
The final time to pyramid is a break out (of the pivot point range?) on heavy volume. It is riskier to enter a pyramiding action when the stock is far from the base.
My take on this is that Reminiscences of a Stock Operator by Edwin Lefèvre is more helpful to a trader than “how to trade in Stocks.”
The bottom line on Livermore’s money management still remains something I learned from Stanley Kroll. To Quote Jessie Livermore in “How to Trade in Stocks.”
Shoot the Works!
“The only area I may have differed from most speculators, was when I felt I was truly right, dead right, for-damn-sure right-then I would go all the way, shoot the works.”
Jesse Livermore must be wearing holes in his funeral clothes turning in his grave about the butchery that Smitten and Trader’s Press have perpetrated on his book. Never before have I seen so many errors in punctuation, spelling, and grammar. Did a fourth grader edit the manuscript? Furthermore, it is difficult to determine which words were actually written by Livermore and which parts were added. Since the “Livermore Key” is printed in this edition exactly as it appeared in the original (1940) edition, one may surmise that Trader’s Press has an entire copy of the original. Why not just reproduce the original exactly at it was printed in 1940 to maintain some coherency? This book was jam-packed with ads for Smitten’s and Trader’s Press other books. However, the part actually written by Livermore is pure gold.