All posts by Alpha Stock Trading

Stock Trading

Lessons

Following are some very valuable trading lessons from Jesse Livermore, which if followed properly, can create signicant trading profits.

Take your losses quickly and don’t brood about them. Try to learn from them, but mistakes are as inevitable as death. And only make a big move, a real big plunge, when the majority of factors are in your favor.

I think it takes three things. Timing. When to get in the market and when to get out, or when to hold and when to fold. It takes money management. You can’t ever lose your stake, or the entire game is over. And it takes emotional stability. Yes; maybe most important, it takes the ability to control your emotions when you’re in the play. That’s it.

There is nothing unique about the crash of ’29. It is something that happens about every 20 to 30 years, because that is the length of the financial memory. It is about the length of time needed for a new set of suckers to come in and imagine that they have a new and wonderful fix on the future.

A danger signal, often a signal to exit a trade, a signal that made Livermore sit up and take notice, was the one-day reversal. This is a stock movement that often happens at the end of a long-term move. A one-day reversal occurs when the high of the day is higher than the high of the previous day, but the close of the day is below the close of the previous day and the volume of the current day is higher than the volume of the previous day.

Always evaluate and appraise general conditions first, and determine the line of least resistance. Is it an upward-trending market or a downward-trending market? Or is it consolidating-moving sideways, trying to make up its mind? If the overall trend of the market is not in your favor, you are playing at an extreme disadvantage. Go with the flow, bend with the trend, do not sail into a gale.

To anticipate the market is to gamble; to be patient and react when the market gives the signal is to trade.

Wait until a bottom has been firmly established and tested before going in and buying stock.

Nothing ever changes in the market. The only things that change are the players, the pockets, and the memories. The new players have no memory of the previous cycles, because they have not experienced them.

Confine your studies of stock market movements to the prominent stocks of the day, the leaders. It is where the action is. If you cannot make money out of the leading stocks, you are not going to make money out of the stock market. Second, this will also keep your trading universe small and controllable, so you can focus and trade the stocks with the greatest potential. Don’t let greed drive your moves by trying to catch the exact top and the exact bottom.

You will win when all the factors are in your favor, when you are patient and wait for all the ducks to line up in a row. That leads to the second conclusion, that no one could or should trade the market all the time. There were times when a trader should be out of the market, in cash, waiting.

Commodity Trading, Stock Trading

Jesse Livermore

Interview with Jesse Livermore by Edwin Lefevre in 1925. The interview is loaded with valuable lessons for traders and investors across markets. Worth reading and re-reading.
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Lefevre: Hello Mr. Livermore. Thank you for taking the time to conduct this interview with me. It is my understanding that you do not grant many interviews, so I am honored.

Livermore: You are very welcome. I appreciate the respect but you don’t have to address me as Mr.Livermore. Jesse, or my nickname, the boy plunger, will suffice.

Lefevre: And where did you get the name boy plunger?

Livermore: It was during the early days when I was trading small lots in the bucket shops, where the man who traded in twenty shares at a clip was suspected of being J.P. Morgan traveling incognito. I didn’t have a following. I kept my business to myself. As it was, it did not take long for the bucket shops to get sore on me for beating them. I’d walk in and plank down my margin, but they’d look at it without making a move to grab it. They’d say nothing doing. That is when they started calling me the boy plunger. I had to move from shop to shop, even to the point of changing my name. I couldn’t put trades on without getting cheated on the quotes. This was in Boston, so I then moved to where the real action was, to New York. I was 21 at the time. Continue reading Jesse Livermore →

Indian Stock Market, Stock Market News

Government of India Becomes Majority Shareholder in IFCI

IFCI is a term lender in India promoted by financial institutions and banks including LIC, and had no single promoter or majority shareholder till now, with 100% of its shareholding with a diverse body of domestic and foreign shareholders.

Business Standard has reported that IFCI Ltd has decided to proceed with the conversion of Government of India bonds worth INR 923 crore (INR 9.23 billion) into equity. The board of directors of the Company has decided to proceed with the conversion of optionally convertible debentures/bonds(OCBs) held by the Government of India for INR 400 crore (INR 4 billion) and financial assistance of INR 523 crore (INR 5.23 billion), IFCI said in a filing on the BSE.

IFCI will now become a Government of India company, which has its pros and cons. Pros include safety net of a govt. company against fraud and access to capital at all times, and cons include reduced aggression and speed in the capital markets, which IFCI was able to execute as an independent company till now.