The legend of Jesse Livermore

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Who is Jesse Livermore?
Jesse Livermore is the most famous businessman of modern times.
Like most famous traders, he is best known for his “big bullish” bets against stocks ahead of the panic of 1907 and the Great Depression of 1929.
Livermore is the subject of Edward Levfre’s semi-fictional “Reminiscences of a Stock Operator,” a sort of bible for traders.
Naturally gifted with numbers, Livermore longed to get out of the farm life where his family had grown up and worked, but his father had other plans.
He wanted Jesse to work on the family farm and not allow him to pursue a career. When he was a teenager, Jesse’s mother helped him run away from home with only $5. Livermore has survived on his own ever since.
Livermore got his first job operating the ticker tape for a local brokerage, mostly by luck. While doing this job, he made a note of the price patterns he noticed in a ledger, gaining the confidence to put real money in.
Because he was too young to open a real brokerage account, he began trading in local “bucket shops.”
Think of bucket shops as an old version of those dodgy offshore currency brokers.
There’s no real liquidity, you’re shorting the house, you’re making a big difference. There is no exchange to guarantee your position and little recourse if you get screwed up.
Trading is enough to be a zero-sum game, but add these frictions and it seems impossible to profit.
Yet Livermore was so good at spotting and executing price patterns that he was blacklisted by almost every American speculator, forcing him to leave town.
After graduating from speculator’s, Livermore got used to real-time stock quotes, rather than the “statement quotes” they posted on bulletin boards. It was a bumpy start.
As a result, he adjusted his trading style and held his positions longer. What once lasted minutes or hours now lasted days, weeks or months.
Livermore said of his adjustment, “Ignoring the big swing and trying to jump in and out was fatal to me. No one can catch all the fluctuations. In a bull market, your game is to buy and hold until you believe the bull market is coming to an end.”
The rest is history.
Livermore’s excesses and the tug-of-war of stock market success affected multi-millionaires and billionaires to enter the financial markets.
If you work on a trading floor and haven’t read Recall, you’re probably in the minority. That was the impact of the book on the trade world.
Livermore’s biggest deal ever
Jesse Livermore won praise on Wall Street for predicting market declines, earning the nickname “Wall Street’s bear market.”
Two of his biggest deals came during the panic of 1907 and the Great Depression. He thought he could benefit enormously from both.
The panic of 1907
After the “panic of the rich of 1903”, the us stock market bubble of the mid-1910s was slowly expanding.
Livermore saw no reason to fight this trend and went long until he had an Epiphany on a trip to Atlantic City in the spring of 1906.
Livermore reported that he had a strong feeling that Union Pacific stock would fall. This feeling is completely at odds with his trading style, as he usually trades with the trend and waits for price action to confirm his arguments.
Still, Livermore shorted Union Pacific. By luck or intuition, he saw a profit of $300,000 just two days later when the San Francisco earthquake hit.
Although this type of trading makes no logical sense, and any modern trading educator would (rightly) advise against it, Livermore believes that this type of trading built his fortune.
Over the next few months, Livermore began aggressively shorting various stocks as the market collapsed, eventually making about $300,000 from his trades.
He changed his position and began to buy at the behest of John Pierpont Morgan.

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