This
publication explains that you only need to know how to handle 4th grade
math to manage trading. However, the opposite is true too: If you cannot or
refuse to handle 4th grade math, stay out of trading.
Why to be
so provocative?
At times, I
am coming across people, who refuse to calculate 2% of $380, however, they feel
that there is a way to make money from the financial markets. On my opinion: Trading
stocks, commodities, currencies, and treasuries is a nickel and dime business
and requires you to apply basic math.
Trading is a
numbers game and for every trade you take, there is a party taking the other
side, with an opposite opinion to the one you have:
Party-1 is buying
by a perspective of a value gain in the asset they invest in.
Party-2 is selling
by the perspective of a future value drop.
Who is right?
Mostly the
party, who takes the other side to your trade: Because they are prepared.
However, you
can change this correlation at ease: The big money is leaving their traces and
we can detect it and beat institutions by speed: Entering and exiting entire
positions on the spot. The big money either by regulation or size is unable to
do this.
Let us share
our little synopsis of the life of Jesse
Livermore, who was a great trader and speculator - always willing to learn,
study and open to new ideas. He was
dedicated to always gaining an advantage over all other traders and
investors.
The story of
Mr. Livermore is a very important and instructive legacy every person, who
wants to advance to being a financial market investor, should be exposed to.
His teachings all throughout his books and biographies were all about basic
trading philosophies, which include:
-
trend-following
strategies,
-
trend-fading
strategies,
-
deep
market analysis,
-
following
the leaders,
-
identifying
pivot points,
-
and,
of course, risk management.
Besides
others, you will find all those elements in NeverLossTrading as an updated form
of considering trading psychology and action in the times of computerized
investment and high frequency trading.
By his
biography, it took Jesse Livermore years to nearly perfect his system and
methods, and it required intensive studying and effort in order to execute and
to stay disciplined in trading. NeverLossTrading
is providing you a shortcut, so you do not need to build up a trading system on
your own.
Jesse
Livermore in his writing proclaims:
-
The
stock market is for neither the lazy nor the uninitiated.
-
If
one really wants to succeed in making money in the financial markets over the
long haul, then one will need to put in the necessary time and effort - not
only in the studying of the market, but in the studying of one's own psychology
and tolerances, as well.
Referring to
his tragic biography the question comes up: “If Livermore was so great, why did
he ultimately lose his fortune during the Great Depression and why was he not
able to make a "comeback" again?
There are
many factors that make a person’s life and success and we want to share our
interpretation:
Jesse
Livermore characterized his way to success was based on the following
principles:
-
In
order to succeed in life, one needs to put in a great deal of time and effort
to an endeavor that one enjoys doing.
-
There
needs to be an affinity to numbers and a great discipline for keeping
records.
-
Things
change, and with that, there is always a need to learn and being receptive to
new ideas.
In short:
Jesse Livermore was a self-made man. He ran away from home at the age of only
14 and went to work as a quotation boy in Boston. He quickly learned the art of "reading
the tape" and from here, he proceeded to trade in the bucket shops - and
was so successful that he was practically banned from trading in Boston. From
the bucket shops, he relocated to New York and started trading on the Big Board
in the office of E. F. Hutton. This was in the year 1897. By that time, Livermore had already gained a
reputation as the "Boy Plunger" in Boston. He was only 20 years old.
Trading
"legitimately" on the NYSE taught Jesse Livermore his first major
lesson in how to consistently make money in the stock market. How?
Within six months of opening his account in a legitimate brokerage firm,
he had lost all his money - all $2,500 of it - approximately the equivalent of
$100,000 in today's dollars.
But this
unfortunate development only motivated Livermore to study his mistakes more
carefully. He was able to beat the game
in the Boston bucket shops, so why not on the Big Board?
He shared the
following experience with us:
-
Each
trader has to find their own trading style and comfort zone and underlying
instruments to trade.
-
Different
underlying trading instruments like shares, indexes, commodities, currencies
have their own dynamics to learn.
-
The
greatest amount of money is made following the major trends for stocks and
commodities, while there are tends and trends in the trend. He had always been
able to call significant tops or bottoms in the stock and commodity market and
had always been able to initiate positions at the most opportune time accepting
the fact that markets move in an up- and down wave- patterns.
-
Time
to execution: Jesse Livermore was handed
down the ultimate lesson in the art of execution during the final day of the
Northern Pacific Corner on May 9, 1901.
Livermore had anticipated a huge downside move in the morning and a
subsequent one-day upside reversal. He
was right, of course, but he ultimately lost his entire stake of $50,000 that
day. Because of the huge volume during
that day, the tape was nearly two hours behind; his brokers (who were very
able) did place an order to short U.S. Steel and Santa Fe in the morning, but
those orders did not get executed until two hours later. By then, both Steel and Santa Fe had already
fallen by over two dozen points. When
Livermore ultimately covered, he did so at levels that were two dozen points
higher. This one-day plunder cost him
his entire stake, which took him a long time to build up. Hence, we proclaim
for everybody who is serious in being a financial market investor to use a
modern real time platform with instant execution. A phone call to a broker,
being put on hold and executing at the wrong time might have the same
detrimental effects as described.
-
Reading
the market and price action: While his tape-reading skills were still
important, they were not as important as studying the fundamentals of each
company and the credit conditions of the stock market and the economy. His first successful "raid" on the
stock market based on his sound, fundamental studies occurred during the Panic
of 1907. As credit conditions tightened
and as a number of businesses and Wall Street brokerages went bankrupt during
the summer, Livermore could sense that something was wrong - despite the hopes
of the public evident in the still-rising stock market. Sooner or later, Livermore concluded, there
will be a huge break of epic proportions.
Livermore continued to establish his short positions, and by October,
the decline of the stock market started accelerating with the collapse of the
Knickerbocker Trust in New York City and Westinghouse Electric. J.P. Morgan eventually stepped in to avert
the collapse of the banking system and the New York Stock Exchange, but only
after Livermore managed to make more than one million dollars by shorting the
most popular stocks (and covering on a plea from J.P. Morgan himself) in the
stock market. Our days we prepare with the key news events, market evaluation
and a trading platform setup that alarms us clearly, when market dynamics
change.
To succeed in
the financial markets methods of producing gains in up, down and sideways
markets are essential. What made Livermore so successful during the first
thirty years of the 20th century was this: Not only was he multi-talented in
the traditional sense (his skills in analyzing long-term trends and
fundamentals were as good as his skills in tape-reading and in day trading), he
was also multi-talented in the sense that he was able to evolve with the market
very successfully. He had always been
flexible in either trading the long side or short side - and he was also able
to sit out in a market that was devoid of activity as well.
Another
lesson to learn: Do not depend on analyst’s opinions or "insider
information." Focus on what the charts tell you. Common information is
mostly wrong and does not make successful trades. Livermore learned this lesson the hard way.
Livermore had always been skeptical about the dependability on "insider
information." After all, why would
top management tell outsiders that he was selling shares in his own company
because he thinks business will be bad going forward (these were the days
before insider-trading was made illegal)?
Telling outsiders would only add more selling pressure to the stock, and
vice-versa. Livermore got his first real
lesson sometime after he closed out his profitable short position in Union
Pacific right before the 1906 San Francisco Earthquake. After three days of tape-watching, he
concluded that the shares of Union Pacific were being accumulated. He started to accumulate shares in Union
Pacific as well - only to be stopped by Ed Hutton, the great New York financier
and owner of the E.F. Hutton brokerage house, and a personal friend. Hutton told Livermore that he had inside
information and that the insiders have set up a pool and were dumping shares to
him at a furious rate. Sooner or later,
Union Pacific is going to tank. Despite
his own beliefs and the reinforcements of all those beliefs from years of tape-watching,
Livermore liquidated his 5,000 shares of Union Pacific at $162 - making only
$10,000 in the process. The next day,
the company announced a 10% dividend and the shares shot up by an additional
ten points. What was the opportunity
cost? $50,000 in additional profits,
which would be equivalent to over one million dollars today. Livermore did not get upset or emotional, but
after this incident, he swore that he will never listen to insider information
again and that he will only trust his tape-watching skills and instincts from
now on.
Trust in
yourself and what you see on your charts and forget or do not even expose
yourself to expert opinions. Use stops that get you out of so a single trade
cannot hurt your capital and keep you in business. Do not try to be right,
accept when you are wrong and move on. This was a hard lesson to be learned for
Jesse Livermore. Soon after the Panic of
1907 - when Livermore was trading successfully at a peak level and had made a
small fortune by nearly cornering the cotton market. Some weeks before, a man named Percy Thomas
(who was also known as the "Cotton King") had gone bankrupt in trying
to corner the Cotton market, and hearing Livermore's exploits. Mr. Thomas would
seek him out and ask Livermore to be his partner. Livermore refused to be Thomas' partner since
he had always played a lone hand.
However, Thomas was a man of knowledge (particularly in the cotton
market, of course - where he supposedly had "spies" that would report
crop conditions and the like to him as soon as they could) and a great charmer,
and Livermore was soon put under his spell.
Prior to Livermore meeting Thomas, Livermore was short cotton. After a month of listening to Thomas and
falling under his spell, Livermore covered his short position and went
long. This was the beginning of
Livermore's downfall. With his judgment
clouded, Livermore continued to average down on his long position even as
Cotton fell. He even sold out his
profitable wheat position in order to maintain his margin requirements in
cotton and to even buy more cotton on the way down. After realizing what had happened, Livermore
soon sold out - with a stake of only $300,000 left - 10% of what he had only
some months ago. Livermore sold his
apartment and his yacht and tried to recoup his losses in the stock
market. By this time, however, his
emotions were running wild and his trading skills were shot. Soon thereafter, Livermore was broke once
again - not only losing his remaining stake of $300,000 - but now, he was in
debt to the tune of over one million dollars.
Livermore would ultimately establish himself once again, but this lesson
further reinforced his beliefs that he should always play a lone hand, and that
he should never tell anyone what he was doing or ask otherwise.
Jesse
Livermore has been able to successfully trade the stock and commodity markets
over a period of more than thirty years not only because of his intelligence,
cool-headedness, trading skills, and his far-sightedness. He was also eager to learn something new
every day. He was also flexible -
whether on the long or short side or just being in cash. He figured out when there were opportunities
in the stock market, and figured out what strategy to adopt and when there were
opportunities or not.
Let us put
his forte in front of our trading and learn to be careful in position sizing
and clear commitment to exit the markets when we are wrong without getting
hurt. NeverLossTrading incorporates all those elements and considers them in
day-, intraday- and long-term-investment.
The financial
markets from their beginning and still today are an exclusive club dominated by
intuitional investors (only brokerage firms are allowed to trade, so you and I
need a third party to do so). Institutional investors are big companies like
Goldman Sachs, JP Morgan, ING, Barclays Bank and many more. Those institutions
have to execute their orders in an organized fashion. To do so, they build up
systems and compile orders with clear instructions where to buy and where to
sell. How else would the communication between the headquarter and a floor
trader work?
Many people
think that employed floor traders would act on their own decision and with that
make it all happen. If they could do this on their own and make a fortune for
their employers, would they stay for a salary?
As a result,
we investigated the way Institutional Investors organize their system of order
execution and follow their footsteps.
A key
question often asked: “But what if the institutions trade against you.” The
volume of orders a small investor can place in the market is so minuscule and
does not matter in the big scheme of things, where Goldman Sachs fights Deutsch
Bank and UBS (Switzerland) on a currency- or stock trade.
In our
studies, we display on a chart where crucial price levels are and in advance
decide if we go with or against the overall market trend at those predefined
levels that automatically appear on our graphs.
Combining all
this we find answers to: Why Do Prices Stop and Turn at Certain Points by
evaluating?
Our trading system works with various securities: Shares, Indexes, Commodities, Currencies, Treasuries, and their derivatives: Options and Futures: We always trade in relation to the psychology and action of people, however, we found common denominators which help to synthesize what is going on in a particular investment instrument or in the overall market.
We teach
NeverLossTrading in four mentorship classes. Check our two examples:
NLT Top-Line: Our laser
sharp trading suite, which includes market scanners installed on you computers
to always stay on top of the markets real time.
NLT HF-Stock Trading:
Focus is the stock market investor, trading for high short term returns off daily
and weekly charts, by trading selected shares base on own analysis and our
constant market feedback reports.
Each of our systems runs independent
and all systems can be combined to obtain multilayer market information.
Contact@NeverLossTrading.com for more information or call: +1 866
455 4520
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