The Legend of Jesse Livermore

The legend of Jesse Livermore, The Plunger Boy

The majority of people who have an interest in the markets will sooner or later end up hearing of Jesse Livermore; probably the most famous trader ever.

A book about his life, “Reminiscences of a stock operator” is the best book about trading ever written. It may not be the book that most people are looking for when they get started in the markets. You will not see beautiful charts or indicators, nor statistics or any trading system.

Jesse Livermore plunger

The book written by Edwin Lefevre tells the story of Larry Livingston, a pseudonym of Livermore, “the plunger boy”, the terror of the bucket shops.

Jesse was born and grew up at the end of the XIX century, in my point of view, the golden era of Capitalism, next to which the world of today pale in comparison.

I remember reading that there were no taxes for the trading profits; not certainly in bucket shops.

There were just a few taxes by the XIX century in the United States.

Jesse Livermore book

The book starts with the description of Livermore´s job in a bucket shop in which he was the clerk boy in charge of writing the prices on the blackboard. That was his job at 14 years old. Thanks to that job Livermore learned how the prices moved.

It means that before he started trading he spent many years of studying the markets 10 hours per day until he comprehended the way the prices moved. So a good advice for a candidate to day trading would be to do the same.

Spend many years just looking at the prices many hours per day and doing paper or demo trading.

When I started trading many years ago, I did not take the time to study the markets like that and started trading from the “beginning”.

It was a very expensive lesson.

Jesse Livermore greatest stock trader

Later on, he started trading, and it was not long before he left his work as a blackboard guy to trade full time. The interesting thing is the fact that it seemed very easy for him to turn small amounts into a lot of money in a very short time.

From this point of view, it seems a little dangerous to think that what Jesse did was easy and that we can do it too.

It is not easy to multiply your account in a short period like Livermore regularly did.


He certainly must have bet 10 or 15% of his account in every trade, but that is not something recommendable for any trader, not to mention a novice trader.

The fact is that Larry knew how to beat the bucket shops, so he could win the majority of occasions.

Livermore knew very well that it took nerves of steel and an aptitude for gaming and numbers if you wanted to succeed in the world of speculation.

He always avoided external advice.

His main strategy was simple: read and follow the tape.

Jesse Livermore rules for trading

Livermore taught us some of the best and most known rules in the world of trading

  • “Watch the market leaders” He knew that he should not waste his time analyzing hundreds of underperforming assets. He would concentrate on the 9 or 10 leaders of the market and trade them.
  • “Take your losses quickly” Perhaps the most sacred rule in trading. He who breaks this rule will sooner or later pay for it. Livermore did it sometimes and had to pay a fortune.
  • “Every once in a while you must go to cash and take a vacation”. It is not good to be the whole day every day analyzing the markets, but I know it can be difficult to avoid when you are passionate about this.
  • “Do not be invested in the market all the time” It is not good for your emotional state when you overtrade. Actually there are times when it is best not to trade at all, like when the market is “dead” and have no volatility.
  • “Prudent speculators never argue with the tape” This is a very difficult lesson to learn. It does not matter the current state of the economy; it may be awful, but if the stock market goes up you must be long
  • “Without specific, clear and tested rules, speculators do not have any real chance of success” We should know when we are going to get in and get out of any trade. And never forget to use proper money management.
  • “That is why I have always played a lone hand” This is his way of saying: do not pay attention to others, whatever they recommend you.
  • “But there is also the Wall Street fool, who thinks he must trade all the time” This is easier said than done. Even Livermore lost a lot of money trading years when the market did not move at all. The best is to wait for the moment when the market heats up. There are moments, like when the market is ranging when we should no trade.
  • “They say you never go broke taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market” When you trade a trend you should try to get as many points as possible. That is done by sitting tight and looking for big price swings; certainly not 4 points.
  • “Remember that stocks are never too high for you to begin buying or too low to begin selling” What Livermore meant is that bull and bear markets last more than we usually think. And that it is always better to be long at a higher price than to be short.
  • “After spending many years in 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 always was my sitting” It is incredibly difficult to apply this. But the truth is that you should sit tight and let your profits run. It is best than being in and out all of the time. When you buy a stock, you should look for a 10, 20, 30% or more rise; do not let your anxiety defeat you when you have a 3 points profit. Be patient.
  • “When I am bearish, and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true” I know this can be very difficult to digest for many people. But believe me. It is how a speculator has to trade. The best signal for a bull trade is a higher price, and even better, the highest price record. When a stock is trading at its highest price, it is one of the stocks we have to trade in the long side.
  • “Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly” This is why everybody should start trading very conservatively. First years of trading should be about learning, not about becoming “rich”.
  • “I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans – and human nature never changes” A philosophical jewel by Livermore.
  • “When the market goes against you, you hope that every day will be the last day – and you lose more than you should had you not listened to hope. And when the market goes your way, you become fearful that the next day will take away your profit and you get out – too soon” A marvelous psychological lesson 100 years ago.

Mr. Partridge lesson: “Well, it is a Bull Market”

Of all the stories of the book, there is one that is probably my favorite.

Jesse told us that after some years he realized of a lesson that was given to him by the old man: Mister Turkey (Mr. Partridge) and his saying “well, you know, we are in a bull market”.

That happened once when another trader asked Mr. Partridge why he did not take a profit when his stock was 4 points up.

The guy told the old man that he could buy back the stock when there was a correction. The old man answered that it was a bull market and that he could not afford to be out his stock in the middle of it.

The young guy did not understand and left Mr. Partridge.

Livermore listened to the conversation but did not notice the fundamental lesson till some years later.

The lesson was: “Let your profits run”. If we are in and out every day or so, the one who is going to be very happy is our broker. Guess why.

Thanks for reading and sharing.