We often like to refer back to one of the all-time greatest books about trading, Reminscences of a Stock Operator by Edwin Lefevre. This book was originally published in 1923 and is basically a biography of the famous trader Jesse Livermore. There are also other Livermore books out there if you are so inclined.
If you are utilizing active investing and rules-based trading in your portfolio, this book is a must read … and is a good re-read as well. Certainly one of the classic canons for traders (along with other books such as the Market Wizards series and Extraordinary Delusions and the Madness of Crowds).
Let's have a quick reminder of some of the timeless lessons from Livermore:
"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 market are driven by humans – and human nature never changes."
"A prudent speculator never argues with the tape." Another version is ""I don't know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn't get you anywhere."
"Don't take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don't be an impatient trader."
"Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul."
"Professional traders have always had some system or other based upon their experience and governed either by their attitude towards speculation or by their desires."
"I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit."
"Experience has proved to me that real money made in speculating has been in commitments in a stock or commodity showing a profit right from the start."
"In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be. The thing to do is to watch the market, read the tape to determine the limits of the get nowhere prices, and make up your mind that you will not take an interest until the prices breaks through the limit in either direction."
"If you can't sleep at night because of your stock market position, then you have gone too far. If this is the case, then sell your position down to the sleeping level."
"It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind."
It's really amazing how well many of the lessons from Livermore hold up as tenets for modern-day trading and active investing.
The logical basis of technical analysis/charting ("reading the tape"), letting winners run and cutting losers short, proper mental psychology for successful trading, patience and waiting for confirmations and setups, the trend is your friend, the best trades often go your way right away, don't double down or dollar-cost average on losing trades, use a systemized approach.
All of these concepts and so many more were experienced and analyzed by a successful trader nearly 100 years ago …
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