A Losing Trader’s Response To Jesse Livermore’s “21 Rules”

Our StockTwits friend Joe Fahmy (@jfahmy) shared some timeless wisdom from the one-and-only Jesse Livermore today. The book “Reminiscences of a Stock Operator” (essentially an auto-biography of his life) is required regular reading for all market participants, regardless of skill level or experience.

Anyway, when reading through JL’s “21 rules” as listed by Joe, I couldn’t help but visualize the cynical (read: Losing) Trader’s counterpoint to each Rule. So, for a little fun, I thought I’d list the Losing Trader’s Counterpoints here:

1. Nothing new ever occurs in the business of speculating or investing in securities and commodities.

  • But this time is totally different. Cuz interest rates, QE, the Fed, etc….

2. Money cannot consistently be made trading every day or every week during the year.

  • But if just buy every time $XYZ crosses over this intraday VWAP and sell when the 1-minute moving average trends down, there is money to be made every day! Easy!

3. Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion.

  • The stock isn’t going up yet because “the shorts” are MANIPULATING this stock. As soon as they stop, we go up. I don’t want to be late.

4. Markets are never wrong – opinions often are.

  • Markets are wrong when they are MANIPULATED! We are going to crash SO HARD any day now. YOU’VE BEEN WARNED!

5. The real money made in speculating has been in commitments showing in profit right from the start.

  • I’d rather scale in on the way down. Easy way to get a better price on your total position. Silly to pay the highest prices you’ve seen!

6. As long as a stock is acting right, and the market is right, do not be in a hurry to take profits.

  • I always sell into the move and then buy back lower to reestablish my position at lower average prices. Except that one time I bought Tesla at $45 and sold out in thirds up to $55, then watched it go nearly straight up to $200. But how many times does THAT happen?

7. One should never permit speculative ventures to run into investments.

  • If I like the stock at $50, I LOVE it at $35!! I like my stocks like I like my groceries — ON SALE!

8. The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.

  • If I don’t sell when I’m showing a paper loss, it isn’t really a loss. I can wait it out.

9. Never buy a stock because it has had a big decline from its previous high.

  • The shorts are MANIPULATING the stock down to cover their positions. We’ll be back at new highs in no time.

10. Never sell a stock because it seems high-priced.

  • Never let a winner turn into a loser. Would you buy a stock at it’s all-time high price? That’s insane! If you wouldn’t buy, then you must SELL!

11. I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction.

  • Why leave this sure money on the table? I’m always scaling in at lower prices as the stock comes off it’s high.

12. Never average losses.

  • Except when your losses are insane and the market is CLEARLY WRONG. This is the time to score a STEAL OF A LIFETIME!

13. The human side of every person is the greatest enemy of the average investor or speculator.

  • Only losers can’t handle their emotions and deserve to lose.

14. Wishful thinking must be banished.

  • I wish every day for the “big pullback” that I’m 100% certain I’ll allocate 100% of my cash at or near the capitulation bottom.

15. Big movements take time to develop.

  • I don’t have time to wait. I’ve got Lexus lease payments to meet.

16. It is not good to be too curious about all the reasons behind price movements.

  • I keep CNBC on next to my trading terminal all day. As soon as breaking news hits, I pile in long or short.

17. It is much easier to watch a few than many.

  • Go big or go home. I put all my cash in one position at a time and work it! That’s the only way to outsized gains.

18. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole.

  • Hogwash… there is so much more money to be made in the cheap sub $5 stocks. I can take HUGE POSITIONS!

19. The leaders of today may not be the leaders of two years from now.

  • Unless the story is WORLD CHANGING, in which case I’ll add to my position on any and all pullbacks.

20. Do not become completely bearish or bullish on the whole market because one stock in some particular group has plainly reversed its course from the general trend.

  • What does “the market” have to do with my positions? I trade each stock on its own merits and story.

21. Few people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.

  • Pay no attention to this rule. I’m starting a twitter trading tip service for $259/month that boasts of an 85% win rate selling naked options. This is a can’t miss opportunity. Sign up now!

Joe Fahmy’s original blog post here