"Reminiscences of a Stock Operator", a book written by Edwin Lefèvre in 1923 is a chronicle of Jesse Livermore’s life. Jesse Livermore was one of the most famous traders of the 19th century. During his trading journey, Jesse lost many profits but managed to earn them again. In the following, a few valuable lessons from Jesse is mentioned.
1- Jesse believed that the market is always the same and never change. Two strong emotions of fear and greed have controlled the market for years.
2- Jesse believed that the market is a great teacher. There is so much to learn from victory as well as defeat. Jesse learned that he may outsmart a group of traders but he can not outsmart the market.
3- Jesse believed in maximizing your profit by pouring more money into a winning trade. This is the opposite of what value investors believe. Value investors believe in buying at bargain prices. However, Jesse believed in the unpredictability of the market.
4- Jesse believed the market behavior is mostly driven by crowd psychology. His trading activity was influenced by whether the market was bear or bull. He believed the market trends can start even before news come out. However, a bear market or bull market can be reinforced by the news.
5- Jesse believed that you can not predict the stock market. You do not need to be right in every trade. Predicting all fluctuations in the stock market is impossible. However, to make a profit you need to be right in more winning trades than losing trades.
6- Jesse believed in developing the right mindset and personality for trading. He believed in virtues such as patience, discipline, self-reliance, and analytical thinking. For an excellent trading mindset, traders must develop skills such as sharp observation, memorization skills, mathematical skills, and statistics (probability). Discipline is extremely important and every trader should have a trading plan to follow. A plan that gives him guidelines on what to do in any scenario that arises.
Here are a few quotes from Jesse mentioned in the book:
“There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”
“It was never my thinking that made the big money for me, it always was sitting.”