Jesse Livermore's investment approach

Jesse Livermore, a legendary trader, left an indelible mark on the financial world. His investment approach was both insightful and unconventional. Let’s delve into some key aspects of Livermore’s trading strategies:

1. Trading on His Own Terms:

   • Livermore traded using his own funds and his own system. He didn’t rely on anyone else’s capital.
   • His immense success is even more remarkable considering the market conditions of his time—thinly traded markets with volatile moves.

2. Price Patterns and Trends:

   • Livermore preferred trading in stocks that were moving in a trend. He avoided ranging markets.
   • When prices approached a pivotal point, he observed how they reacted.
   • For instance, if a stock hit a $50 low, bounced to $60, and then headed back down to $50, Livermore waited for the pivotal point to come into play before making a trade.
   • If the stock dropped to $48, he entered a short trade. If it bounced off the $50 level and reached $52, he entered a long trade.
   • Livermore closely watched other pivotal levels, such as $60, and would add to his position if the stock moved favorably.

3. Volume Analysis and Timing Indicators:

   • Livermore didn’t have modern-day charts. Instead, he tracked price patterns in a ledger.
   • He combined price patterns with volume analysis to make informed decisions.
   • His timing indicators were based on pivotal points and how prices behaved around them.
   • If a stock broke above a pivotal level, he would pyramid his position (add to it) as it continued to rise.
   • Conversely, failure to penetrate or hold above a pivotal level led to liquidation of long positions.

4. Success and Setbacks:

   • At his peak in 1929, Jesse Livermore’s net worth reached an astonishing $100 million (equivalent to about $1.5 billion today).
   • However, he also faced significant losses, often due to not following his own rules.
   • Despite his immense wealth, Livermore’s life was marked by both triumphs and setbacks.

In summary, Jesse Livermore’s legacy lies in his ability to recognize and capitalize on market trends, his focus on pivotal points, and his unwavering commitment to trading on his own terms. His rules and insights continue to resonate with traders even in today’s dynamic market.