Jesse Livermore - Poverty to Trading Billions

Who is the most influential investment and trading master in modern times? Do names like Buffett and Soros come to mind? Maybe if you go around Wall Street and ask, you will hear a very frequent name: Jesse Livermore, who was revered as the King of Trading. Have you heard of him? Like Buffett, Soros, and others, he is considered one of the most outstanding investment traders of the last century. On the American economic and financial stage, his influence has forced Wall Street financial giants and the government to bow their heads and beg for mercy.

Jesse Livermore, born in 1877, was already a figure two centuries ago. His story begins in Massachusetts. His family was poor when he was a child, and he decided to run away from home when he was 14 years old. With only five dollars given to him by his mother, he began a wandering and legendary life. In that era, there were many places in the United States that were called "buckets," which were equivalent to stock casinos. You can imagine it as a casino. You go in and bet on whether stocks will rise or fall. It is similar to buying and selling stocks, but in fact, you don't actually buy or sell physical objects.

At this time, the little trading king became very interested in stock prices. By observing price fluctuations and recording them in a small notebook, he found that stock prices tended to fluctuate within a range. So, he formulated a simple strategy: buy at the low end of the range and sell at the high end. This strategy allowed him to earn $200 in a week and easily buy his mother a house for $1,000 at the age of 17.

So in Boston's stock casino, the name of the trading king gradually spread, attracting a lot of attention but also causing dissatisfaction in the casino. Eventually he was blacklisted, and his financial opportunities in Boston were blocked, so he decided to go to New York. At this time, he discovered that the real stock market was not as fun as he imagined. The market changed rapidly, and the prices he saw in the casino were lagging. The actual transaction costs may be higher, and the liquidity is good and bad. His short-term, high-frequency trading strategy cannot work in the real stock market. Then he realized he needed to change his strategy.

After in-depth research, the trading king found that stock prices do not fluctuate randomly, but there are key points, such as support and pressure levels. He recognized that stock prices would fluctuate within these areas in the short term and, once they broke out of these areas, could continue to rise or fall. This subversive thought upgrade led him to the next stage of trading, which is to follow the trend. The success of this strategy made him famous in the stock market, and his net worth reached one hundred thousand US dollars.

Of course, this process was not smooth sailing for him. For example, he was too timid to sell a waist stock early, which resulted in a regrettable loss. This laid the foundation for his later trading principle: don't rush to sell on profitable trades.

After making a large sum of money in the stock market, he was overjoyed and immediately rushed into the cotton futures market. It was not as simple as imagined, but the easy situation was shattered before his eyes, so he easily lost more than half of the $50,000 investment. There is a very important reason for this: he is reluctant to sell when he suffers a small loss, always hoping to recover the loss, which ultimately leads to a more serious loss. This leads to the second trading principle: for losing trades, if you are not confident about the prospects, you should stop the loss immediately.

This principle echoes the first. When a stock falls, most people's instinctive reaction is to wait and see, hoping to wait for the stock price to recover. Some may even consider buying some more to reduce costs and wait for future increases. Both of these principles tell us to resist our own instincts. Good trading is often based on rigorous analysis. If the transaction is based on thoughtful analysis and ultimately makes a profit, then the probability of this analysis is relatively high. On the contrary, if you start to lose money, it means that your judgment may be wrong. At this time, you should stop the loss in time; otherwise, you may lose more.

Of course, this is based on careful analysis rather than blind guesses about future trends.

The trading king's trading strategies and ideas continued to improve, and his wealth gradually accumulated to one hundred thousand US dollars. In 1907, markets lost trust, and people ran to banks. The strategy adopted by the trading king in the second stage is to follow the trend and fully use this essence to judge that the market is about to collapse. He decisively shorted the market and successfully made a fortune. At this time, the U.S. government was nervous and worried about the economic crisis, so it turned to JPMorgan Chase for help. Morgan found out that the trading king was short selling and took the initiative to come to him to intercede, hoping that he would stop the operation. Taking into account Morgan's face, the trading king decided to close the position and go long on the backhand. The result was just as he expected. Under the market operations of the big guys, the stock market rebounded rapidly. The trading king made one million US dollars in one day, and his net worth reached five million US dollars.

This success also made the trading king fall into arrogance, and he began to squander money, buy yachts and luxury houses, and make friends with famous ladies. He was immersed in the joy of success and thought the whole world belonged to him. This is exactly the mistake that many people make after success; that is, they are too careless, spend money like water, and ignore the risks.

In the second year after successfully making money, the trading king once again entered the cotton futures market. At this time, a friend who claimed to be the Cotton King gave him some inside information and suggested that he do more cotton. Although dubious, the trading king increased the leverage and started buying cotton futures. Unexpectedly, the cotton king joined forces with other suppliers to sell off cotton in large quantities, causing prices to plummet and the trading king to go bankrupt again.

This blow was very heavy for the trading king, prompting him to add a principle to his trading principles: believe that you can listen to what others say, but you cannot take full credit. The trading king can only lick his face again and borrow money from friends, hoping to make a comeback. At this time, he was 39 years old and more cautious than before. He spent six weeks without making a single transaction, but instead waited and studied the market's quotation trends. I hope to find a good time. He happened to seize the time of World War I and knew that the demand for metals would increase during the war, so he invested a large amount of money to buy shares of a steel company at a purchase price of $98. The stock rose to $115, but he insisted on not selling, applied his first trading principle, and even continued to increase positions and increase leverage. Finally, when the stock reached $145, he felt it was enough, quit, and made his initial capital back.

Such trading plots are often psychological games. The trading king's strategies become more and more mature, and he makes more and more money, gradually understanding the core of the game in the market. He upgraded his strategy, ushered in his heyday, and once again made money. The trading king was no longer satisfied with this and began to enter the cotton futures market. This time, he thoroughly figured out the correct way to open the cotton market and squeezed the market by buying futures. He used gray means and public opinion manipulation, which once made it almost impossible to buy cotton in the market. The U.S. government felt nervous, and the White House sent someone to find the deal king urgently and asked him to stop. To save face for the government, the trading king stopped the operation.

It is undeniable that the trading king became more and more successful in the futures market and then ran on the wheat and corn markets, achieving another upgrade. His decisions and strategies have made him a dark horse in the market, constantly refreshing his legend of success.

As time goes by, the trading ideas of the trading king become more mature, and he gradually develops his own set of unique trading rules. He proposed the famous "Moore's Law", which states that "price changes always move in the opposite direction." This law is considered to be the pioneering work of stock market technical analysis theory and has had a profound impact on subsequent technical analysis schools.

In 1925, the 48-year-old trading king was worth tens of millions of dollars. At this time, he summed up an extremely important principle in trading: don't rush into the market when the opportunity is not obvious enough. Patience is the most difficult thing to maintain during the trading process. Although it seems simple, I personally think this is the most wonderful point. In short, when you don't have a good idea, don't act rashly. Many people feel the same way about stock trading, because when analyzing strategies and transactions, the most difficult thing is not to come up with a powerful analysis method but to sit back and wait for good opportunities.

In 1929, the trading king noticed that many leading stocks in the market were showing signs of slight malaise and vaguely smelled the breath of crisis. This is a once-in-a-lifetime opportunity for him. He had successfully shorted wheat, cotton, and certain stocks before, but this time he wanted to short the entire U.S. stock market. In order to cover up his losses, he hired more than a hundred brokers to secretly start short selling. On October 29, 1929, which we often call Black Tuesday, the U.S. stock market suffered an indescribable plunge. The U.S. government had repeatedly begged for mercy before, but to no avail this time, leading to the worst economic depression in U.S. history.

Faced with this once-in-a-century opportunity, the trading king used his lifelong experience and skills to defeat his own instincts. When the market was depressed, the trading king cleverly took advantage of the opportunity. This act of jeopardizing the country's wealth was not viewed favorably in the moral context of the time because capitalists like J.P. Morgan and Trading King often lacked moral restraint in the absence of supervision.

However, wealth did not bring happiness. The trading king's second wife was addicted to alcohol and even had a quarrel with her son; she shot and wounded him and almost took his life. Later, he divorced his wife and suffered from amnesia, and his career was in chaos. As a result, the United States established a regulatory agency, the SEC, which made the trading king's sexy operations more difficult.

In 1934, the once-billionaire trading king went bankrupt for the third time. To this day, why he went bankrupt remains a mystery. This time, the trading king could no longer make a comeback and even suffered from depression. At the age of 63, he chose to end his life. This was the life of trading king Livermore. He ran away from home with five dollars in his pocket at the age of 14. He experienced three ups and downs, three bankruptcies, and finally became a billionaire. However, he ended his life by committing suicide.

Although the trading king failed to stick to his trading principles, his trading concepts had a profound impact on later generations and were adopted by many modern masters. Finally, he gave everyone the classic principle of the trading king: "The market is never wrong; only human nature will make mistakes.”

Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.