I learned how to trade from a dead man...

In 1994 I knew absolutely nothing about the stock market so I asked my boss Scotty, what book I should read first.  He told me hands down, Reminiscences of a Stock Operator, by Edwin Lefevre. When a trader that makes over a million dollars a year tells you about his favorite book, you run to Barnes and Noble and you buy it immediately. Scotty told me that the book was originally published in 1923, but nothing has changed. The stock market is still trading the same way. He told me it was his trading Bible. What I learned from reading this book is how to read the tape. Old fashioned tape reading.

The author, Edwin Lefever, interviewed Jesse Livermore for a few weeks and this book was born. I wanted to share with you just a few of my favorite things I learned from Jesse. These special things have saved me thousands of dollars over the past 26 years. I am pretty sure we can all relate to this first quote from Jesse:

“If a stock doesn’t act right don’t touch it; because being unable to tell precisely what is wrong. You cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.”

How many times have you held onto a stock hoping it was going to make a move, but it did not? Instead of getting out, you held onto it, only to wake up one morning to find it gap against you. Over the years, I have exited so many positions because they did not ‘act right’. If the stock went below the prints, I would get out of my long position. If the stock went above the prints, I would exit my short trade. I love that I learned from Jesse to get out if it does not behave the way you want it to.

This next quote from Jesse is one of my favorites when it comes to timing:

“Everything happened as I had foreseen. I was dead right and I lost every cent I had!

So many traders try to make rational sense of the market. Afterall, that is exactly what the media tries to do every day. They try to rationalize why the market is up today and down tomorrow. The market does not make any rational sense. It moves up when the big institutions are buying, and it moves down when the big institutions are selling. These institutions do all their trades in the alternative exchange, known as the Dark Pool. We could feel the market is top heavy, but until the big guys sell their stocks, they will keep taking the market higher.

I learned from Jesse that we could be right about the market, but if we enter too early, we could lose all our money.

Many traders, in an attempt to make their portfolio look better, will buy stock and when the stock goes lower, they will average down and buy more. Sometimes they may get lucky and the stock will come back up, but many times it does not.

Here is what Jesse had to say about that…

“When I am bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on the rising scale. I don’t buy long stock on a scale down; I buy on a scale up.”

I learned from Jesse that you should never add onto an unsuccessful trade. He goes on to say this:

“Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don’t make a second unless the first shows you a profit.”

One of my most popular rules that I teach my students is “NO THINKING”. In fact, you may have seen my T-shirt that says, “Bullish above, Bearish below, No Thinking!”

I also learned this from Jesse. Here is where he talks about that:

“I do not allow my possessions or my prepossessions either to do any thinking for me. That is why I repeat that I never argue with the tape. To be angry at the market because it unexpectedly or even illogically goes against you is like getting mad at your lungs because you have pneumonia.”

These are just a few things that I learned from Jesse Livermore. Pretty amazing how many amazing things you can learn about trading from a dead man. I just wish he were alive so I could thank him!

Until next time,
Happy Trading!
Stefanie Kammerman