Day Trading & Forex Forum

jiggly

we use him as an example because he managed to make so much f*cking Mulaa that if we could just be a few million behind him, we would do extreamly well.

besides him blowing out several times and bouncing back several times also, I dont know about you, but if i could manage to do that AND know when to slow things down and stop, I would be onto a good thing.

wouldn't you agree.??

Options - so we are sasying in essence if he had £1000 he would make a trade and risk £100 of it (10%), either by slowly injecting this amount into the market or starting with this amount and then adding another £100 as he went along - i think he was using the profits on the position for additional margin as well was he not?

good luck to all

donaldduke

Jesse Livermore is one of my heros. The poor guy never had access to the basic trading knowledge we take for granted today, ie risk and money management techniques. He was figuring out the basic stuff as he went along the hard way. Nor did he have access to todays medicine and therapy to alleviate his depression.

In general you cant make big money without taking big risks (drawdowns).

If someone wants to make big money quickly I would recommend taking bigger risk (3% to 5% per trade) when you start out with a relatively small account. If you blow up your account you can always go back to your day job and recharge it. As you account grows you can start dropping the risk down towards sensible levels.

Returns in the 100% to 500% per year range are possible if you are prepared to take the big drawdowns. Thats much easier to do when you account is small and you have a job to fall back on. A great trading system also helps!

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It is not enough to succeed. Others must fail.

options

Roughly about right as I understand it.

He would test his theory by putting into the market 10 or 20% of the capital he wanted to invest. If that went awry he would pull any amount left out of the trade.

When it went right, he would add to it at prime points. without flicking back through the book I couldn't say the percentages he used. (It does tell you in the book), but I don't think he ever invested more than 50% in one block in one purchase. Preferring incremental amounts until he was as maxed out as he intended. Getting out of the position(s) would have been the same way.

He also on occasion I believe, had to buy the market 'up' in order to off load for fear of adjusting the price too much. Not something the likes of us will have to worry about.

Also, although he 'plunged' in heavy when he knew he was right. I don't think he ever had his net worth invested in one trade. (I may be wrong on this though. Someone who has recently read the book will have a better memory than I.)

Interestingly, he never took his own advice of putting some of his profit away from the market. Might have been his saving grace had he done so. Especially after the first collapse.

Then again, wouldn't he have pulled the savings out and carried on as normal?

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Follow the path of least resistance.

jiggly

you see many aspiring trader has looked to livermore's trading style for clues as to how they should approach the markets, it is almost like a story and manuel for trading in one.

My system and I bet your own mimicks his somewhere along the lines, whether you realise this or not.

for instance, he traded on chart patterns (tape reading), his position would be confirmed by the increase or absence of volume, it should react as expected or he would be out. he traded in the direction of the broader market trend, he waited for his pivotal points to arise before starting his operations, he had some sort of risk and money management, which we are trying to uncover in more detail in this thread. (some might say it was no good, but his risk tolerence was far greater than yours and mine). he would let his profits run until the trend was on its last legs, he cut his losses short.

come to think of it now, I dont really add to my positions, I slowly reduce them as the market moves in my favour to reduce the overall risk and exposure at the beginning until the market confirms I am correct (playing defence), where as he does the opposite. I dont trade 10% at any one go, i dont explore my position by testing the market.

does anyone else trade similar to this?

this could be some of the areas, along with playing differently with our capital, where I and others could be preventing themselves from making bigger money.

so I have an account of lets say £1000.

we could wait for our opportune time for trading, then we could trade our initial 1-2% risk position as an exploratory trade, as the position moves in our favour and the trend is confirming itself, we could add another 2% and so on, until we reach a total position risking 10% (£100).

we are in business to trade, this is a business where you can start very small and turn it into a fortune if we go about managing that money correctly, if we have a method which leaves a lot of our capital sitting idle and unemployed for the majority of the time we could be fundementally preventing ourselves from realising our ambitions.

the best of luck to all

Lightning McQueen

Jesse Livermore gives us a glimpse into his world of successes and failure, if with all our modern tools at our command we cannot emulate even a small part of his glory and avoid his pitfalls then something is badly amiss.

We, in our time have an unprecedented amount of knowledge at the click of a button, unprecedented (near) instant execution of our orders, unprecedented tools to observe the market and it's movement, how we use that mix is up to us as individuals

To make big money you have to up the risk and hit big but to stay safe and stay in the game you have to hit big with other peoples money.

Here's lightnings fledgling ideas and 5 point plan for hitting big and staying safe.

1. It's all in the entry

Get that entry right and the world is yours. Livermore's whole strategy has at its heart the theory of a stock passing it's pivotal point, and he could see this phenomenon of market dynamics by reading the tape and observing and noting the changes in the price. simple really.

2. Livermore pivotal entry points are not straight lines!

Livermore pivots are fixed points in time that the price pivots on in real time as you watch the action unfold. They are not straight lines generated by your charting software that may or may not signify a turning point at some point in the future.

3. Stops - if its not working get out!

If you find the entry going the wrong way and into negative territory why wait, stop it out. Livermore knew that if a stock wasn't acting as anticipated he would get out because his strategy was such that he knew his pivotal point entry was key and if it failed he knew he had entered the market in error at the wrong time, again simple really.

4. Stay in the trade for maximum profit

So we got the consistent good entry what next, staying in the trade for the max profit we can squeeze out of it, thats what. in other words stay in the trade until the momentum runs out of steam and the price flattens or a pivot appears for a move in the opposite direction. close out the trade and wait next entry point in the main trend or for extra bucks take a counter trend trade back to the mean (and possibly beyond) if a reversal pivotal point is apparent.

5. Maxing out the risk AKA no pain no big gain!

ok, the first trade or two are good. Now put some back into the capital base plus a little extra to grow the account. The rest we are now playing with other peoples money or the houses depending on platform. Our risk control can go out the window, preservation of capital has left the building folks!. By using the same sound strategy 1-4 we can now safely compound the gains on each successive trade to the max from the newly gained pot without fear of losing our capital base. Lost the risk pot? oops, well we simply start again with a little from the main pot which should have grown a bit if you had put a little aside from the obsene profits before the blow up.

Exotic car, gin palace, gorgeous babes and that country mansion retreat awaits the brave ...or the workhouse lol

*Never, ever, ever risk your capital base spanish style. Or any other style as it happens and please stay safe in the market.



"The fruits of your sucess will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking and reaching your own conclusions" - Jesse Livermore, 1877-1940.

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trader_dante

Firstly can I say that this is one of the best threads I have read on T2W.

I have spent a lot of time researching and reading up on JL - infact I am somewhat obsessed with him. I will be staying in New York at the Sherry Netherland this Christmas.

One thing that seems to connect the biggest traders and investors of our time is that they are not afraid to plunge - to take big risk when things lined up right. JL was actually known as the "boy plunger" in his youth because when he had tested the market by sending out one of his probes and the market was acting as he believed it should do before a big move was imminent, he would go in big.

Take Warren Buffet now. In 1962, Buffet was watching American Express. In a scandal involving one of AE's clients, its shares fell from $65 to $35 almost overnight. Buffet then made the decision to put 40% of his total assets ($13m) into AE stock. Over the next two years the shares tripled and he and his partners netted $20m in profit.

40% risk! And we have 2-3% per trade touted as the maximum amount that anyone should risk.

Well, as another poster pointed out, for every JL (who indeed went bankrupt) there are a whole list of failures BUT it seems to me that the people who made it big (regardless of whether they blew up later on) all made it taking big risk.

Dan Zanger (popularised as one of the greatest stock traders of our time - and indeed boasting incredible returns on capital) also uses ridiculous leverage to achieve his results. In other words, when the trade lines up, he goes in big.

But the one thing I would say is that you can do it without taking big risk to your capital base as LMC said above but rather by risking the markets money.

What you should aim to do is get 100% of your capital riding a trend.That is my constant aim whilst trading although opportunities to do so are extremely rare. Catching a trend and holding your position long enough to get all your capital into it (whilst making sure your risk constantly decreases and your reward increases) is very difficult and requires a huge deal of patience and discipline and a good knowledge of price action.

I remember posting this on FF a while back - showing how based on the Dax on a daily TF, with just a paltry £1 a tick as a starting position, you could have achieved a gain of well over £70,000 in one trade, just doubling up several times as the bull run progressed over six months and moving your stops so that you would come out with NO PROFIT on the trade if they were hit although your capital base would still remain intact. (original thread is here: Trading with 100% of your capital)

This is one of the hardest things to do. Who wants to see an open P&L of many thousands come out for nothing - even though you had nothing to begin with in the first place? That has always been the problem with Trend Following and the reason why it is very hard to do successfully: a trader has to be prepared to give back a significant portion, if not all, of their profits to capture a huge move and make a huge amount of money off it.

As an aside - I am trading for a charity at the moment and recording my results in my journal: something I never used to do but I have picked up from my prop firm (and it is touted among traders everywhere) is scaling out as targets get hit. I have come to the conclusion that this method of getting out because arbitrary targets are hit is largely BS.

I have had a close look at my first ten trades and documented how many pounds profit I achieved from them compared to how many pounds I could have made (from entry to highest possible profit before original stop was hit.)

I was giving myself a pat on the back for having made almost £1k from £40 before I saw that I could have had almost £4,500. And that is over 1 week. Imagine how much money you leave on the table over a year of trading.

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Aspire

So what your saying is that to make it big you need to grow some balls!

Lightning McQueen

and a 70's 'tache, chopper style

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