Legendary Traders: Lessons from Wall Street’s Biggest Winners and Losers – Jesse Livermore

Jesse Livermore, aka “The Boy Plunger”, was a legendary trader born in 1877. He made and lost several fortunes during his lifetime and is probably best known for his ability to read market trends and his short-selling strategies. Livermore developed a unique trading style based on price action and market trends: He emphasized trading with the trend, buying in bull markets and shorting in bear markets. A key part of his trading style was wait for key price levels, which he called pivotal points, before entering trades. He also believed in being patient, waiting for the market to confirm his thesis before making trades, then holding onto winning positions letting the profits run, while cutting losing ones quickly

Livermore primarily traded stocks and commodities. His most famous trades were in the 1907 Panic where he made $3 million shorting the market during the financial crisis, and shorting the market before the 1929 crash when he reportedly made a $100 million profit, back in the days when $100 million was big money :-). Livermore stressed the importance of patience and discipline, and the need to follow a trading plan rigorously. He also was a big believer in market psychology and the science of crowd behavior. He learned the hard way about the importance of using stop-losses and proper position sizing with some substantial losses in his career. Tragically, Livermore didn’t die rich. Despite amassing several fortunes he declared bankruptcy multiple times and at the end of his life had lost his entire fortune and was living off family annuities.

Livermore's life and trading principles were immortalized in the 1923 book "Reminiscences of a Stock Operator" by Edwin Lefèvre.

Livermore’s life and trading principles were immortalized in the 1923 book “Reminiscences of a Stock Operator” by Edwin Lefèvre. Even today this work is considered essential reading for traders. He authored a book “How to Trade in Stocks” in 1940. Jesse Livermore’s story serves as both an inspiration and a cautionary tale. His ability to read markets was unparalleled, but his failure to consistently follow his own rules ultimately led to his financial downfall. We can learn from his successes and his mistakes. In my opinion the main lessons are emphasizing the importance of discipline, patience, risk management, and emotional control.

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