Jesse Livermore Method and Rules (2024)

FAQs

What strategy did Jesse Livermore use? ›

Jesse outlined a simple trading system: wait for pivotal points before entering a trade. When the points come into play, trade them using a buffer, trading in the direction of the overall market. Let the price dictate your actions and stay with profitable trades until there is good reason to exit the trade.

At the bucket shop, Livermore would place a trade on a stock that he knew was only thinly traded on the NYSE. He would then trade the shares on the NYSE to move the actual stock price substantially in the required direction. The new price would come through to the bucket shop and Livermore would collect his profits.

Livermore's personal rule was that he would not risk more than 10% on any one trade. Livermore also stressed the fact that your stop, if hit should not generate a margin call. He felt that the last thing a trader should do is fund their account for a margin call.

George Soros

This feat cemented his reputation as the "man who broke the Bank of England" and solidified his status as a forex trading legend. Soros' net worth is estimated to be around $8 billion, making him one of the wealthiest individuals in the world.

Understanding the Rule of 90

According to this rule, 90% of novice traders will experience significant losses within their first 90 days of trading, ultimately wiping out 90% of their initial capital.

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.

5% Rule: This rule applies to the total risk exposure across all your open trades. It recommends limiting the total risk exposure of all your trades combined to no more than 5% of your trading capital. This means if you have multiple trades open simultaneously, their combined risk should not exceed 5%.

Jesse Lauriston Livermore (July 26, 1877 – November 28, 1940) was an American stock trader. He is considered a pioneer of day trading and was the basis for the main character of Reminiscences of a Stock Operator, a best-selling book by Edwin Lefèvre.

Jesse Livermore, one of the greatest traders who ever lived once said that the big money is made in the big swings of the market. In this regard, Livermore successfully applied swing trading strategies that work and which helped him achieve amazing financial results.

The Shakeout + 3 pattern also comes when a stock starts to rally after the second leg has formed. The buy point is derived by adding three points to the low of the first pullback. So if the first low was 27, add 3 points to get a correct entry at 30.

What are the three golden rules of trading? ›

Key Rules from Iconic Traders

Cut your losses quickly: Never let a loss get out of control. Trade with the trend: Follow the market's direction. Do not trade every day: Only trade when the market conditions are favorable.

The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal. In order to safeguard themselves against big losses, traders attempt to restrict exposures on a single deal.

The Turtle Trading System is a trend-following system that emphasizes position sizing, entry and exit rules, and risk management. The system is based on a set of specific rules and principles that are designed to identify and follow long-term trends in the market.

Throughout his career, Livermore made and lost fortunes trading the markets. It appears, from his interviews with Edwin Lefèvre in 1922, that the causes of his losses were: He was trading in the period before he had fully formulated his trading rules. He ignored his trading rules.

The Turtle Trading experiment was seen as a tremendous success. Market conditions are always changing, and some question whether this style of trading could survive in today's markets.

Strategies Employed by Operators:

Swing Trading: Traders hold positions for a few days to weeks, capitalizing on medium-term market trends. Value Investing: Investors seek undervalued stocks with the belief that their true worth will be recognized over time.