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Trading Lessons from Jesse Livermore – The Worlds Greatest Trader

A Brief History
At the age of 14, Jesse Livermore began his trading career, although not as a trader.  He was one of the young boys who would stand on a wooden plank in front of a chalkboard posting the quotes of prices for speculators.  This was at the Paine Webber brokerage in Boston.
After about a year of this watching stock prices, noticing patterns, having hunches and checking to see how they did, he decided to make a move.  Keep in mind he had no education in economics, business or finance.  He came from a farming family and left at 14 to make a new life for himself.
He took his $5 in savings and made his first trade which he won.  After trading for several months, at the age of 15 he had made $1,000 in winnings (about 20k today).  By the age of 21, he went to New York with everything he had – $2,500.  Keep in mind, just before this he was actually up about $10,000 so lost 75% of his stake just before heading to the Big Apple.  How did he do in his first few hours of trading?  Lost almost half his $2,500, in about 2hrs.  He proceeded to lose the rest in a matter of days.  He actually had to borrow money at that point to continue.

And continue he did, actually leaving Wall-Street to go make money where he knew he could, the bucketshops – places built specifically to help speculators lose money.  He gained enough money to come back to Wall-Street, only to lose it again.  He did this three times.
During the 1907 crash, he built up his wealth to $3million.  He had done so shorting the market until a plea from a man named J.P. Morgan asked him to stop shorting the market as it may threaten the financial stability of the country.
He lost virtually all of this (90%) on a blown cotton trade and had to start over.  He continued to lose money after this during the flat markets of 1908-1912, hitting a low of $1million in debt forcing him to declare bankruptcy. Remember this cotton trade as we will write about it in a later post.
Moving on to 1929, after slowly building up his stake again (after several losing periods as well), he made another big win shorting the market going into the crash.  How big?  To the tune of $100million dollars which would be worth billions in today’s value.

5 years later, FDR had created the SEC  which caused the markets to take on a completely different character, something never before seen in the markets. How did this effect Jesse’s trading?  He subsequently lost all of his $100million dollars.  When he died a few years later in 1940, including all his trusts and assets, he had a net worth of about $5million ($95million less from his all time highs).
The Lessons
Now that you’ve had a brief history of one of the most amazing traders and stories of speculators across time, what were some of his crucial lessons he learned from trading?
1) Learning how to read price was a critical aspect of his trading, learning how to spot opportunities, notice price behavior for an underlying instrument, find opportune times to get in, etc.  He spent the early days of his first year not trading, but watching, learning, observing and remembering price moves.   No indicators, no computers, no charts.  Nothing but pure price data and price action.  He could spot key levels where the market was going to bounce, or break out, or start a trend or crash through a key level.  But again, he learned this from hours and hours of observation of price behavior and price action.
He did not expect to get rich quick or cut corners.  He worked and studied hard to develop his skills.  One of his more famous quotes on the subject, “The game of speculation is the most fascinating game in the world. But it is not a game for the the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”  from his book, ‘How to Trade Stocks
You would not believe how many people I run into asking me how they can make money fast, or 10% per month for the next year (when they cannot even be profitable now), or say they want to be a ‘professional trader’.  Yet, they don’t fill out their trade journal, or do performance analysis on their systems or trading, or follow their trade plan, or work on their mental game, or spend time just studying the markets.
Jesse Livermore constantly filled in his trading journals and studied them endlessly, along with price movements and price action.  When he went to Wall Street and failed the first time, he spent the next several years analyzing his system.  It took him three times before he could return and be successful there.  He also worked exceptionally hard at his risk management and did not expect to do 10% per month every month for the next year.  He had no dreams or illusions about making fortunes.  He simply looked for the best opportunities and traded them.  And when he did, the money came.
2) Resiliency.  If you were to put 100,000 traders through the wins and losses and all the experiences Jesse went through, probably less than a few % would see it through the end.  He went through several divorces, actually asked his first wife to borrow money to keep trading which divided them forever.  He traded in ‘bucketshops’ designed to take people’s money with no regulatory bodies in place to protect anyone.  He had the poorest execution for the longest time and lost his entire stake over a dozen times.
Yet he always came back.  He studied harder, refined his system further, made less mistakes & learned from his big losses.  By eliminating most of his mistakes, getting more disciplined after each setback, sticking to his trading plan and constantly studying the markets, he came back with more vigor each time and greater successes, even after losing all his prior gains.  It takes resiliency to trade the markets, mental, physical, spiritual (if you will), that in the face of losses, humiliation, being undisciplined and being flat out wrong, to pick up and try again.  The best of all careers (and not just in trading) are marinated with characters of resiliency.
3) GettingThe Big Moves‘ or ‘Best Opportunities‘  Jesse Livermore was one of the few people to make money in both the 1907 and 1929 crashes.  While tens of thousands were losing fortunes, he was making money and becoming exceptionally wealthy in the process.  He was not married to any bias or view of the market (bullish or bearish).  He read the price action and found the best opportunities when they came.  He did not over-trade or expect to find exceptional trades every day.  He was patient, sometimes not trading for an entire year until conditions were ripe.  He noticed how people would get lured into markets that were not prime for making money and how often people lost during those times.  His discipline and patience allowed him further to get him into the ‘Big Moves’ being short the markets going into the 1907 and 1929 crashes.
Imagine you are short the strongest stocks to date before the market makes a big move, and then starts to fall and your profits are increasing by multiples of 2, 3, 5, 10, 20 or 50x.  Are you watching your profits in the ‘account balance’ window of your platform wondering when its going to reversethinking ‘I should just take my profits now‘?  Or are  you watching the two things you should be, the markets and your system, waiting for your exit signal.
By always keeping his eye on the markets and waiting for his signal telling him to exit, he was able to stay in the biggest moves of the decade and hold them until he got his signal (or was asked to stop selling the market so the financial system would collapse).  Nothing was more important to him than keeping his eye on the target and the markets.
Dozens More…
These are just some of the most important lessons from his career and I could write about dozens more which I will share in later articles about one of the greatest traders of all time. Jesse Livermore and his trading career is someone I can read about time and time again and continually learn from (whether trading is good or challenging).
Perhaps you are profiting from these volatile times, or perhaps you are finding challenges in trading this unique environment.  Hopefully you will benefit from these timeless lessons of Jesse Livermore’s career.
-May all good things for you increase.
Chris Capre
Twitter; 2ndskiesforex
*For another great article on Trading Psychology, make sure to check out ‘The Pyramid of Trading

11 thoughts on “Trading Lessons from Jesse Livermore – The Worlds Greatest Trader”

    1. Hello Don,
      Yes, his life is both a tale of amazing success and also great tragedy, of extreme highs and lows.
      But i think if you read about all that he did in the trading world, it is nothing short of amazing, and he had a lot of valuable lessons for traders these days.
      Thanks for sharing.
      Kind Regards,

    2. The suicide could have been because of many other factors but his tactical moves on the market were amazing

  1. Really enjoyed this. Its historical , educational and inspiring. I think it really highlights that your mindstate is so important in trading. The ability to bounce back after a huge (or any) loss is vital. And equally, the ability to stay cool if your making nice profits. I think some traders have this naturally and some, like myself, need to work on it. Get you mind right and the rest will follow.
    I look forward to hearing about the cotton trade ?
    Thanks Chris

    1. Hello Dominic,
      Glad you liked the article. I constantly draw information and inspiration from his career and how to apply that towards mine.
      In terms of the cotton trade, I talked about this in a webinar after the article which was unfortunately not recorded.
      Kind Regards,

  2. Probably in those early 1900, price action should be a bit more easier than now without all the retails, robots, stupid systems and so ?
    Anyway, I love that story, thanks Chris !
    I can’t imagine trading without a computer or candles !

    1. Hello Mikee,
      In some sense, price action wasn’t too different and many of the same patterns that work now worked then if you look at charts from that time.
      But glad you liked the story.
      Kind Regards,

  3. Great Article.
    so nice to see how he was able to get up every time he was crashed.
    You think he was working on his money management ? I don’t know, those big losses say he was bold and an opportunity seeker but not a good money manager in my opinion.
    now I understand how position sizing can make the difference.
    Thank you Chris.

    1. Hello Baback,
      Yes, Jesse had an ability to read markets for sure. No doubt about it.
      As to money management, he was generally very good about it risking very little per trade. He made his mistakes in that area which he admits to.
      But the markets changed drastically over his decades long career and I think the changes in the market is what hit him most. Not his money management.
      But good that you are realizing how position sizing can make a difference.
      Kind Regards,

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