Lessons from Jesse Livermore part 3: Play a Lone Hand

The Lessons from Jesse Livermore Series explores the trading philosophy and trading rules of renowned trader, Jesse Livermore.  Although developed a century ago, Livermore’s ideas have great relevance for today’s traders. Here Livermore discusses why in trading it’s best to be a loner.

Reminiscences of a Stock Operator
Chapter 1;  page 7; paragraph 2

I didn’t have a following. ( within the brokerage houses ) I kept my business to myself. It was a one-man business, anyhow. It was my head, wasn’t it? Prices either were going the way I doped them out, without any help from friends or partners, or they were going the other way, and nobody could stop them out of kindness to me. I couldn’t see where I needed to tell my business to anybody else. I’ve got friends, of course, but my business has always been the same—a one-man affair. That is why I have always played a lone hand.”

The Lesson
Humans are social animals. They enjoy interacting with other people.  That is the reason why Facebook can go from an idea in 2003 to 1.2B users in 2016.  The recent political season brought tribalism into the spotlight. Are you a Republican or a Democrat?  Mainstream centrists need not enter the conversation.

What does this have to do with trading? Quite a bit actually.  Look at the popularity of StockTwits, Seeking Alpha, and other investing websites that have a heavy dose of social integrated into them.  Trading chat rooms and Twitter add a whole new dimension. Lots of traders spend a lot of time on these sites and in the chat rooms. Are you a Bull or a Bear? blah blah blah. I wont condemn these sites universally because there are kernels of good information to be found, but there are many traps.

It is so easy to be sucked into endless debates that neither prove anything nor gain anything either.  Its also very easy to be sucked into group think. I discussed in an earlier post how I got sucked into the bear camp earlier this year. It caused me not to trust my bullish charts; It was an expensive lesson.

I could go on and on about the evils of spending a lot of time in these places, but I will jump directly to Livermore’s conclusion.  Trading is a one-man business.  Your trades wont be helped by the opinion of others, but your mindset may well become polluted by them. And, does anyone really care if you are long $FB or $GPRO?

Use the web to seek true knowledge; it can be a useful tool for you.  Just remember that trading isnt a social club.  Can you imagine a Market Wizard logging into StockTwits to post their latest trade?  Can you imagine them wasting even 5 minutes debating their trade with a 43 year old, nameless person that is likely trading a paper account from their Mom’s basement?   Its silly when you think of it that way.

Action Ideas

  • If you are a technical trader, as I am, all you need is your charts and a trading plan that you own. 
  • Review how much time you are spending on social sites. Take a hard look at it. Are you learning new things that are helping you improve as a trader or is the time spend on mindless banter that in the end may confuse and frustrate you more often than not.
  • Consider distilling your social network down to 5 – 10 traders / authors / sites that truly benefit you.  Let the the rest of the garbage go. You may experience, as I did, a new calmness and clarity of thought wash over you. You will see it present itself in crisper trades and better results.
  • Move toward playing a lone hand. I have coaxed a few traders that I work with in this direction.  To a person they have each dialed back their “social presence” and have seen tangible benefits.   Try it for 60 days; what have you got to lose?

Happy Hunting and Good Trading!

Like the Series so far?  Here are links to additional installments

Part 2:  Stop asking why   HERE              Part 3: Play a Lone Hand  HERE

Part 4:  A Time for all Things  HERE     Part 5: Expensive Enemies  HERE

Part 6: Commissions Matter  HERE     Part 7: Blown up Accounts  HERE

Part 8: Imaginary Millions HERE            Part 9: Give it Time    HERE 

Part 10: Sit Tight    HERE            Part 11: How to Buy and Sell Stocks   HERE

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