Lessons from Jesse Livermore Part 5: Expensive Enemies

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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 outlines the personal demons, common to us, all that undercut trading performance.


Reminiscences of a Stock Operator
Chapter 2;  page 14; paragraph 3  continuing on page 15

 I proved it. Whenever I read the tape by the light of experience I made money, but when I made a plain fool play I had to lose. I was no exception, was I ?”  …

“Of course I let the craving for excitement get the better of my judgment. …  The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”

“A stock operator has to fight a lot of expensive enemies within himself.”

The Lesson

Let’s start with the last quote first. For my money, no truer words have ever been spoken about the market.

Listen folks, I will tell you this as plainly and as clearly as possible. The entire game of becoming a successful stock operator revolves around your willingness and capacity to identify and control the enemies within yourself, whatever they may be.

  • Short Term “Wanna Be” Stock Operator Mentality: Conquer Markets
  • Professional Long Term Stock Operator Mentality:  Conquer Thyself

Think about it.  With the great abundance of technical information about the markets and trading techniques instantly available and with all the smart people trading, why aren’t there millionaires all over the place?  You’re smart, you’re capable, you work hard, are you killin’ it?

The reason most folks, including myself, run into trouble is because the expensive enemies are running free. They undercut everything we are trying to achieve. It’s also true that these enemies are difficult to tame and harder still to kill.

For example:  There was a time in my trading life where I though I really had a gambling problem. As Jesse put it “craving excitement”.  I was over-trading and losing but not stopping.  It’s funny too.  In my life outside of trading, true gambling holds little appeal.  A weekend in Vegas might include dropping $200 into some slot machines, but nothing more. It holds no fascination for me.

But yet, there it was. I had to take a serious look at it.  It was hard and agonizing. Regardless of what I called it, the over -trading was ruining me.  It took me a long time ( months and months )  but i finally instituted rules that did not allow me to put on a trade the same day i got a bright idea. I imposed a 24 hour trading moratorium between trade idea and trade execution.  If I had a bright idea today and it still seemed like a bright idea in 24 hours, I’d give myself permission to make the trade.

In the scheme of things, 24 hours doesn’t make a hill of beans difference to a swing trader or his results. It turned out that after 24 hours a lot of those bright ideas didnt seem too smart just a day later.  Another thing I did was limit my open positions to a certain number.  If i was maxed out on open positions and i had a new idea, my rule set forced me to close something else. Another self imposed rule to slow me down.

The process was hard and tedious and i didn’t adhere to my rules 100% of the time at first. But over time, I licked the problem and have become a better trader for it.

Action Ideas:

  • This may sound stupid but humor me.  Buy yourself a 5×7 mirror and place it next to your trade station as I have.  Glance at it as you begin your day. Everything you are searching for and hoping for in your trading life is in that mirror.  The answers are in the mirror.  Remind yourself of that multiple times per day.
  • The more enemies from within that you can cage and eventually kill, the closer you will come to achieving all you want in the market.
  • The first part of caging an enemy is identifying it.  You probably know many of them already.  Write them down.  Set in motion a plan to address them.  I have found it best to only tackle one or two at a time. Work hard so you can see improvement.

The afflictions that derail traders today are the same ones that derailed Livermore a hundred years ago.  Those enemies are alive and well; they dwell within us all. We aren’t different.

Lastly….don’t underestimate the power of these enemies. Killing demons is the hardest work you will ever do.  That’s why 90% of traders don’t even bother trying.

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

If you have any questions or get stuck, I’m here to help. Reach out any time.
email me at [email protected]

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