Monthly Archives: August 2016

Jesse Limermore’s Methods of Trading in Stocks (Book Review)

Jesse Livermores Methods of Trading in Stocks Book Review2Jesse Livermore’s Methods of Trading in Stocks, by Richard D. Wyckoff is a collection of articles and interviews. These columns originally appeared in the Magazine of Wall Street, of which Wyckoff was the editor.

As long time readers of StockIdeas.org know, Jesse Livermore is one of the greatest speculators of all times. And I’ve already read a few books about him, like: Reminiscence of a Stock Operator and How to Trade in Stocks – both of which gave insight into Livermore’s market methodology. So you can understand why I was excited when I discovered that these lost volumes had finally been brought back into print.

Further, I also recently read and reviewed Richard Wyckoff’s own book, Studies in Tape Reading. I found his approach to be matter-of-fact, simple to understand and most of all, time-tested. While these approaches were written about in the early 1920, they’ve stood the test of time. And I was optimistic Jesse Livermore’s Methods of Trading in Stocks would present more of the same.

I was not disappointed. Let me tell you why.

Overview of Jesse Livermore’s Methods of Trading in Stocks:

As I mentioned, this book is actually a collection of articles and interviews. They were written at the time when Jesse Livermore was the most well-known speculator in the markets. And while Livermore historically avoided the spotlight, he did agree to share his methods in this one set of interviews. Neat, right?

So as you might expect, the book is actually quite short. I would almost call it a pamphlet. That means, at only 32 pages, it’s a very easy read, and each chapter is completed self-encapsulated. But you might be wondering, is a book that short worth reading?

Emphatically, the answer is yes. Although the book is simple, it’s still profound. To paraphrase Livermore himself, there’s nothing new in speculation because human nature doesn’t change. The tactics and strategies he used over 100 years ago are still effective today because our brains and emotions still work the same way. Hope and fear spring eternal.

And that leads my to my favourite part about this unique trading book.

The Best Part of Jesse Livermore’s Methods of Trading in Stocks:

For me, the best part in Jesse Livermore’s Methods of Trading in Stocks is the fact that the book is so simple. And I’ll tell you why.

It’s because in this day and age of online brokers and advanced technical analysis, there’s a tendency to overcomplicate the market. CNBC has 24 hours to fill, 7 days a week. So you can’t blame them for manufacturing drama and complicating the market analysis.

On the other hand:

If Jesse Livermore can lay out his methodology for trading and speculating in stocks in just over 30 pages – and still have the lessons be applicable 100 years later – then it just goes to show that  playing an active hand in the market doesn’t have to be that complicated. You see…

Livermore’s words are a great reminder that you can keep things simple. It’s the classic advice you’ve heard a million times before: go with the trend, cut your losses and let your winners run, and don’t listen to random tips from people on the street.

Of course, there are some nuances. And putting this advice into practice is easier said than done. But I found it incredibly encouraging to see that the approach Livermore espoused is similar to the best practice guidance you hear today. Speculating isn’t complicated, us humans just like to make it that way.

So if you’re looking for a simple to read introduction to the kind of trading advice that’s stood the test of time, then Jesse Livermore’s Methods of Trading in Stocks might just be the right book for you. Since it’s only a couple dollars and under 35 pages, I highly recommend you check it out on Amazon.

For more information, you’re welcome to watch the video book review below to get even more information on this unique trading and speculating book.

Jesse Livermore’s Methods of Trading in Stocks – Video Book Review:

 

4 Successful Trading Rules

The following is a guest post from MoneyFed.com. I think it’s good advice you’d be wise to pay attention to. Enjoy!

Successful investors don’t just take a guess, they discipline themselves to follow a tested, yet flexible, investment strategy that is based on principles for both bull and bear markets. Today, we’re going to examine 4 basic trading rules that have proven to be successful for weekend investors of all skill levels.

Trade with the Market Momentum:

Knowing the overall momentum of the market can save you thousands of dollars. As the markets trend upward, you can invest with more confidence that 8 out of 10 stocks are also trending upward. After all, it is these individual stocks that cause a market to move in a particular direction. And if the markets trend downward, you may want to tighten stop losses, invest only in the leaders, use half positions rather than investing your normal full amount into any stock.

Always Use Stop Losses:

There is some disagreement in the investment community about using stop losses. Many argue investors may be stopped out prematurely from positions during an abnormal market condition (such as May 2010). Nevertheless, I’d rather take my profit and put it in my pocket than watch my stock drop below my purchase price or worse. Unless you’re a sophisticated investor who can watch your positions throughout the day, always use stop losses to minimize your risk and maximize your returns.

Plan your Trade and Trade your Plan:

If you’ve taken the time to develop an investment strategy, as noted in the article above, you can invest with confidence because you’ve back tested your ideas as well as paper traded them until you were consistently successful. Now be disciplined… and stick to your plan.

Review Every Trade Every Week:

It doesn’t have to take hours… but you must take a few moments to review every trade every week. Has anything changed (i.e. news, earnings report, market conditions, technical indicators, etc.)? Then make the necessary adjustments which may include little steps such as moving your stop losses or selling half of your position. Finally, successful investors learn from each closed trade. What worked? What didn’t work? How did emotion play a role in my decisions? Did I follow my investment strategy and if not, what impact did my lack of discipline have on my bottom line?

What I Learned Losing a Million Dollars

What I Learned Losing a Million Dollars Book ReviewWhat I Learned Losing a Million Dollars is an auto-biographical book about the life of Jim Paul, by Jim Paul and Brendan Moynhian.

Although I very recently read this book, I can’t remember where I heard about it or why I picked it up. But either way, I’m very excited to write this review. Because this was one of the best finance books I’ve read in a long time. Can you guess why?

Basically, What I Learned Losing a Million Dollars is all about failure. It stands in stark contrast to 99% of the other investing and trading books out there. Believe me, I’ve read a lot of them.

So this one was refreshing.

I can’t wait to tell you all about What I Learned Losing a Million Dollars, so you can decide whether or not this is the right book for you. So let’s get into it, shall we?

A Summary of What I Learned Losing a Million Dollars:

What I Learned Losing a Million Dollars is an autobiographical account of Jim Paul’s life as a trader and broker. It chronicles the exciting ups and downs in a fun and easy to read way. And as a bonus, the book is educational too.

The first part of this book, and probably the most exciting, is about the life of Jim Paul. It starts at childhood, and documents his exploits through adolescence, college and his nascent career. Since Jim’s such a good story teller, it makes for fun reading. You get a sense of what he was like growing up, and why he became the big shot futures trader that he did.

But then things take a turn for the worst.

The second part of this autobiographical section is the downfall of Paul’s trading career. It explains how he rode a big winner into an insanely large loser. And it’s amazing how quickly things unraveled. This part of the story is both gripping and unbelievable.

The third part of this book, and probably the most interesting, is the post-mortem. Paul takes a cold hard look at his downfall. He tries to learn where he went wrong, and how to succeed in the market. But then, he has a revelation.

Instead of trying to find a holy grail technique to conquering the market, Paul decides to become an expert on losing. He goes to great lengths to learn why people lose in the markets. And to his surprise, there are only a few key reasons. This is where things really get fascinating.

My Favourite Part of What I Learned Losing a Million Dollars:

What I Learned Losing a Million Dollars is a great book overall. But for me, the last part of the book really stood out as the most educational and insightful.

The most interesting part for me, is that it turns out there are only a couple of ways to lose money in the markets. While there are innumerable ways to make a profit, losing comes in only one of two ways.

I don’t want to give away the book here, but it boils down to (1) losing money via your trading or investing methodology, and (2) losing money due to psychological mistakes that cause you to deviate from your methodology.

Make sense?

in the last section of What I Learned Losing a Million Dollars, Paul goes deep into the second factor. Because that’s where most people lose most of their money. Neat, isn’t it?

But to be honest, there’s one thing you should know before you buy this book.

What I Learned Losing a Million Dollars – A Word of Warning:

What I Learned Losing a Million Dollars is a great book, don’t get me wrong. But it’s hard to overestimate how hard it is to implement the advice in the book. You see…

This is the same kind of advice I really enjoyed reading about in Trading in the Zone. And that was one of my favourite trading books of all time. I’m always encouraged when great books independently correlate each other.

But here’s the thing: I’ve read Trading in the Zone 5 times at least. And when reading What I Learned Losing a Million Dollars, I combed over it with a pencil and paper. I do my best to absorb these lessons, and they’re still hard to apply.

The deep-seeded desires of the ego are hard to overrule. But with practice and conscientiousness, I believe it’s possible. So if you have trouble applying the lessons in the book, just keep trying.

Now, let’s bring this book review to a close.

What I Learned Losing a Million Dollars – The Final Word:

What I Learned Losing a Million Dollars is a great book. I honestly can’t wait to read it again. For the reasons above, I highly recommend you check out What I Learned Losing a Million Dollars on Amazon for yourself.

If you want even more information though, you’re also welcome to watch the video book review below.

What I Learned Losing a Million Dollars – Video Book Review: