I learned to read, read and read. I learned to listen, listen and listen. I learned to be a sponge, sponge, sponge. — to people who make money consistently, good year or bad year.
I’m lucky. I really am. My bosses, past and present, are one of the most respected businessmen, investors, traders and fund managers in the country. One of them gave us this book, which I’m reviewing and rereading today.
As the foreword of the book said, this book is for individuals who want to take a leadership role in global markets. Stanley Kroll consolidated his depth and insights, gained during his 34 years on Wall Street. With the accumulated phenomenal amount of experience and wealth Mr. Kroll has amassed, books truly have been the cheapest valuations I’ve ever found daily in my life, and it remains to be the most unnoticed by the pack, due to “barrier of entry” as some don’t have the time to read, or that they have a hundred million things taking their time.
If you want to make big money, you have to understand what you’re doing. Nothing is free in the markets, even if it may seem that way during these “bull market times”. I truly believe, and time has already confirmed my beliefs, that each person who toils at his craft hard will reap all the goods with proper discipline and hard work. Prosper in the coming good times. Learn from decades of investment experience. Okay. I’m excited to share.
1.) Within the context of a major uptrending market, buying on weakness into support is a preferred way to trade.
2.) Carelessness and ineptitude are rarely rewarded by profits. When you put on “too big” a position in terms of a well balanced account even though “it looks” so good on the chart, remember Murphy’s Law.
Chapter 1: Introduction – The Man They Called J. L. (Excerpts from Stanley Kroll)
“Throughout the century, scores of brilliant or lucky market operators have had the heady and envious sensation of closing a position with a million-plus dollar profit. I, too , on a few occasions, have had the good fortune to be included in this exclusive group. But Livermore was in a class of his own. For the sheer scope and magnitude of his gutsy operations, for the disciplined and calculating way in which he bought and sold, for the lonely and detached hand that he invariably played, he has never been surpassed by any other lone operator.”
Jesse Livermore was born in Shrewsbury, Massachusetts, USA, on July 26, 1877. He was the only child of a poor farming couple. At age 14, he left home for a job earning $3.00 per week, as a board market at a Boston brokerage office. From this modest start, and through several years of apprenticeship, trading small stock positions at various bucket shops along East Coast, this quiet and dedicated young man became one of the most feared, and admired market operators of the early part of the century. Other Wall Street operators nicknamed him “Boy Plunger.”
From my earliest Wall Street days, starting in 1959, Livermore was my hero. As I began developing my own expertise in price analysis and trading, he became my coach and mentor- in absentia.
“After spending many years on Wall Street, and after making and losing millions of dollars, I want to tell you this. It never was my thinking that made the big money for me. It was my sitting. Got that? My sitting tight. It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and lots of early bears in bear markets. I have known many men who were right at exactly the right time, and began buying or selling when prices were at the very level which should have made the greatest profit. And, their experience invariably matched mine. That is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a market operator has grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade, than hundreds did in the days of his ignorance. “
Losing money is the least of my troubles. A loss never bothers me after I take it. But being wrong, not taking the loss – that is what does the damage to the pocket book and to the soul.
Personal Tip To Anyone Who Wants To Be A Better Trader : BEST ADVANTAGE IN THE WORLD – LEARNING FROM THE BEST – Study and Enjoy Jesse Livermore’s books. The Classic –Reminiscences of a Market Operator. Every distinguished trader/market operator will tell you that all the market wisdom written there, are as timely today as the day they were written. When market wisdom is timeless, you’re in the midst of priceless bliss. Enjoy. Enjoy. Enjoy. Read. Read. Read.
I count myself as one of his disciples, having read and re-read his writings countless times. Many stock speculators feel the same about this investment legend.
Chapter 2: The Importance of An Investment Strategy
Person A : How does one make money in the futures market? You have to be bold and you have to be right.
Person B: What if you’re bold and wrong?
Person A: Then you go down with the ship.
Aside from the small number of professional operators, who scalp in large volume and pay only negligible commissions or clearing fees, the traders who make the big money on a consistent basis are the longer term position traders. They tend to be trend followers. Some hold for as long as 8-10 months, others hold for 5 years.
With so many players nowadays equally qualified in the technical aspects of their trade or profession, the thing that will distinguish the winner from the almost-winner is the consistent and disciplined application of first class strategy and viable tactics.
2.1 Basic Strategies
(Avoid the Big Wipe Out, Stand Proudly in the Winners’ Circle)
1.) Participate only in strongly trending markets. Identify the direction and take positions only in the direction of this dominant trend, or stand aside.
2.) Initiate positions either on a significant breakout (E.g. gap opening on high volume) or a measured reaction from the ongoing major trend.
3.) Up trends are characterized by higher highs and higher lows, traders shouldn’t be anxious to sell their long positions because bull markets generally go higher than most traders anticipate.
4.) In major up trends, buy on minor trend reactions into support or against a strong up trend line, or on a 45% to 55% reaction (or the third to fifth day of the reaction) from the recent rally high.
5.) Your with-the trend position could result in a big favourable move, so remain aboard for the ride.
6.) Resist the many temptations to trade for the minor swings, or to scalp against the trend trades.
7.) Once the position is favorable, and confirmed by your technical analysis, add to the position (pyramid) under specific conditions.
8.) Maintain position until stopped out, and your trend analysis will indicate that the trend has reversed.
9.) Rule of Thumb – Do not risk more than 40% of margin on a stock trade.
10.) Discipline, discipline and discipline.
Personal and Painful Experience, whenever I’m foolish enough to stray from the above tenets, I lost money. It should come as no surprise that I generally made money when operating according to the strategies and tactics set forth here, for these are universal guidelines.
(Honestly, this book when I first read it didn’t mean much to me but I guess reading things 2nd time around always gives fresh perspectives and more appreciation for those priceless truths in the market. Sit Tight.)