How to Trade in Stocks by Jessy Livermore

Chapter 1: Challenge of Speculation

After the market has been in definite trend for a given period, a bullish or bearish piece of news may not have the slightest effect on the market, or it may have temporary effect. the market itself at the time may be in an overbought or over sold condition, in which case the effect of that particular news would certainly be ignored.

At such times you must entirely ignore personal opinion and apply strict attention to the action of the market itself.

“Markets are never wrong, Opinions often are”

Example

when you buy stock at 30 and next day it will run up to 32.5. You immediately become fearful that if you don’t take the profit, the next day you may see it fade away, so you go out with small profit, when that is he very time you should entertain all the hope in the world.

As long as stock is acting right, and the market is right, do not be in hurry to take a profit.

On the other hand if stock goes to 28 on next day. you would not be fearful that the next day would be 3 point loss or more. You would not be fearful that next day would possibly see a three-point loss or more. No, you would regard it merely as a temporary reaction, feeling certain that the next day it would recover its loss. But that is the time that you should be worried. That two-point loss could be followed by two points the next day, or possibly five or ten within the next week or two. That is when you should be fearful, because if you did not get out, you might be forced to take a much greater loss later on. That is the time you should protect yourself by selling your stock before the loss assumes larger proportions.

“Profits always take care of themselves but losses never do”.

How I buy stocks

This may surprise many to know that in my mththod of trading, when i see by my records that an upward trend is in progress, i become a buyer as soon as a stock makes a “new high on its movement, after having had a normal reaction.”

The Same Applies whenever I take the short side.why? because I am following the trend at the time. I never buy on reactions or go short on rallies.

One the other point: “It is foolhardy to make a second trade, if your first trade shows you a loss.” “Never average losses.”

Chapter 2: When Does a Stock Act Right?

A Speculator of great genius once told me:

“When I see a danger signal handed to me, I don’t argue with it. I get out! A few days later, if everything looks all right, I can always go back in again. Thereby I have saved myself a lot of worry and money. I figure it out this way. If I were walking along a railroad track and saw an express train coming at me sixty miles an hour, I would be a damned foll not to get off the track adn let the train go by. After it had passed, I could always get back on the track again, if I desired. I have always remembered that as a graphic bit of speculative wisdom.”

Chapter 3: Follow the Leaders

Remember too that it is dangerous to start spreading out all over the market. By this I mean, do not have an “Interest in too many stocks at one time. It is much easier to watch a few than many.”

Another mistake I made was to permit myself to turn completely bearish or bullish on the whole market, because one stock in some particular group had plainly yreversed its course from the genral market trend. Before making a new commitment, I should have been patient and awited the time, when some stock in another group had indicated to me that its decline or advance had ended. In time, other stocks would clearly give the same indication. Those are the cues I should have waited for.

Back in the wild bull markets of the late twenties I saw clearly that the advance in the copper stocks had come to an end. A short time later the advance in the motor group reached its zenith. Because the bull market in those two groups had terminated, I soon arrived at the faulty conclusion that I could safely sell everything. I should hate to tell you the amount of money I lost by acting upon that premise.

Chapter 4: Money in the hand

Businessmen opening a shop, or a store would not expect to make over 25% on their investment the first year. But to people who enter the speculative field 25% is nothing. they are looking for 100%. and their calculations are faulty; they fail to make speculation a business and run it on business principles. Here is another little point that might well be remembered. A speculator should make it a rule each time he closes out a successful deal to take one half of his profits and lock this sum up in safe deposit box. The only money that is ever taken out of their accounts after closing a successful deal.

Chapter 5: The Pivotal Point

I do not use the words “Bullish” or “bearish” in defining trends of th emarket, because I think so many poeple, when they hear the words “bullish” or “bearish” Spoken of market wise immediately think that is the course the market is going to take for a very long time.

Well defined trends of that kind do not occur very ofthen only once in about four or fiver years, but during that time there are many well defined trends which last for a comparatively short time. I consequently use the words “Upward Trend” and “Downward Trend” be cause they fully express what is going on at that specific time. Moreover if you make a purchse becausae you think the market is going into an Upward Trend, and then a few weeks later come to conclusion the market is heading into a Downward Trend, you will find it much easier to accept the reversla in trend than if you ha confirmed opinion that the market was definitely in a “bullish” or “bearish” stage.

The Price Patterns remind you that every movement of importance is but repetition of similar price movements, that just as soon as you familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitability upon forth coming movements . I wan to emphasize the fast that; “ I do not consider these records perfection, except as they serve me”

Chapter 6: The Million Dollar Blunder

I have long since learned, as all should learn, not to make excuses when wrong. Just admit it and try to profit by it. We all now when we are wrong. the market will tell the speculator when he is wrong , because he is losing money. When the fist realizes he is wrong is the time to clear out, take his losses, try to keep smiling, study the record to determine the cause of his error, and await the next big opportunity. It is the next result over a period of time in which he is interested.

This sense of knowing when you are wrong even before the market tells you becomes, in time, rather highly developed. It is subj conscious tip-off. It is a signal from within that is based on knowledge of past market performances. Sometime it is an advance agent of the trading formula.

I urge you always to keep a little notebook with you. Jot down interesting market information: thoughts that may be helpful in the future; Ideas that may be re-read from time to time; little personal observations you have made on price movements. On the first page of this little book I suggest you write no , better yet print it in ink: “Beware of inside information, All Inside Information!”

It cannot be said too often that in speculation and investment, success comes only to those who work for it. No one is going to hand you a lot of easy money. It is like the story of then penniless tramp. His hunger gave him the audacity to enter a restaurant and order “ a big, luscious, thick, juicy steak,” and he added to the old waiter, “tell your boss to make it snappy”. In a moment the waiter amled bank and whine: “De boss say if he had dat steak here He’d eat it himself” and if there was any easy money lying around, no one would be forcing it into your pocket.