Jesse Livermore, the man who played big and managed to earn millions of dollars during a time of severe economic instability is definitely a trader to look up to.
The Wall Street Crash of 1929, also called Black Tuesday (October 24), was the reason for the most devastating financial crisis in human history. It led to a 12-year period of “Great Depression” that made millions jobless and homeless in the developed countries. While this was all going on, Livermore made $100 million by going short!
Born in Massachusetts in 1877, Livermore began trading at the age of 14. He worked as a board boy in the asset management firm, Paine Webber. By the age of 15, he was already buying shares and was teaching himself trend following methods. He was making profits in the range of $1,000. At 16, he left the company to trade in Boston’s bucket shops. People grew wary of him repeatedly winning in these shops, which resulted in him getting banned by many. By 1901, he came to New York to a roaring bull market on Wall Street, where he made significant gains.
Success and Achievements
Livermore made several losses and fortunes throughout his tumultuous career. Interestingly, he also amassed a fortune in the 1907 crash, earning $3 million, as he sold the market short. The market lacked capital reserves to buy new stocks. He predicted that prices would drop as soon as traders started panic selling. Just as he predicted, the NYSE dropped almost 50% and banks across the nation went bankrupt.
In 1929, he noticed the same conditions as the 1907 crash. He began shorting various stocks as their prices declined. By the time he finished, he was worth $100 million.
It is important to note here that he subsequently lost all his fortune to miscalculations, losing the 1907 earnings to a blown cotton trade and the 1929 earnings for reasons that are still unknown.
Trading Strategies of Jesse Livermore
Although Livermore committed suicide in 1940, his learnings and strategies have been published numerous times, with the most notable being Reminiscences of a Stock Operator by Edwin Lefèvre. Jesse Livermore’s life and trading career was extraordinary and there is much to learn from it. The book covers many basic lessons like never to distrust the market, trading according to the primary trend and using stop losses all along.
Livermore speaks about how losses can teach you a lot about trading and traders who don’t learn from them fail devastatingly. He credited much of his success to studying stocks, people and market conditions. He stressed on following the market trend. According to him, not even a World War could stop a market turning bullish, if the right conditions existed. In his opinion, the economic factors are always right, no matter what the situation is.
Lastly, Livermore advised traders never to take opinions from multiple sources and to follow their own instincts. This advice rings true even today with traders devising strategies they feel comfortable with before entering the live markets.