Jesse Livermore - Reminiscences of a Stock Operator

This has finally drawn me out of the woodwork!

I am working on an approach which uses similar techniques to assess price action, which I am automating. I finally went live last week, after just under 2 years of work - early to assess results yet, but there is some promise.

I loved Reminiscences, but was very frustrated that he didn't make clear what he meant by "acting right" - so it was great to see the Market key link yesterday - I devoured the book last night - very exciting!

It does feel a lot like Point and Figure (which is the best way I have found so far for letting an automated system get a higher-level view of price action) and probably highlights similar Pivotal Points assuming you have a similar reversal size set for both - the addition of categorising the movements looks brilliant - I will have to have a proper play and see how it looks.
 
This has finally drawn me out of the woodwork!

I am working on an approach which uses similar techniques to assess price action, which I am automating. I finally went live last week, after just under 2 years of work - early to assess results yet, but there is some promise.

I loved Reminiscences, but was very frustrated that he didn't make clear what he meant by "acting right" - so it was great to see the Market key link yesterday - I devoured the book last night - very exciting!

It does feel a lot like Point and Figure (which is the best way I have found so far for letting an automated system get a higher-level view of price action) and probably highlights similar Pivotal Points assuming you have a similar reversal size set for both - the addition of categorising the movements looks brilliant - I will have to have a proper play and see how it looks.

Hi Bovreuil,

Glad you discovered it. It has made me think about the market in a whole new way. It's very time consuming plotting it and takes several attempts as its very complex but it is certainly worthwhile.

You are basically using a swing filter of 20% but in order to prevent getting involved in false breakouts or breakdowns, you are using a penetration filter of one half that (or 10%) plus a Key Price which is the combined price of two different stocks.

I am currently testing it on several markets with exciting results.

Do your own research and come to your own conclusions. Don't be too quick to take in what others are saying because from what I have read, it seems like no one understands this key at all. I'm not sure whether that is because they haven't put in the hours of effort to understand it or what but...anyway, if you want to share ideas, send me a PM and come on MSN or drop me an email.

Tom
 
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Tom,

Thank you - that's made me feel welcome straight away!

Yes I intend to put in some work on this - would be great to compare notes later.

Cheers,

Pete.
 
Bovreuil,

I'm looking at how it relates to US Crude Oil.

$32.40 is the downward trend pivot according to the Livermore Market Key.

According to Livermore if the trend is to be positively resumed we must trade at $29.40 or below.

A BUY SIGNAL will be given if we FAIL to break $32.40 by the full $3 or we trade a "short distance" (note the discretionary element here) above it and then RALLY by $3.
 

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Bovreuil,

I'm looking at how it relates to US Crude Oil.

$32.40 is the downward trend pivot according to the Livermore Market Key.

According to Livermore if the trend is to be positively resumed we must trade at $29.40 or below.

A BUY SIGNAL will be given if we FAIL to break $32.40 by the full $3 or we trade a "short distance" (note the discretionary element here) above it and then RALLY by $3.

Tom,
Save me a load of reading time will you and tell me why it has to go through by 3 bucks?

Cheers
Goose
 
Do you think that it is OK for others to put a lot of work into something and then just give it away because you cannot be bothered to do it yourself ?


Paul
 
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Tom,
Save me a load of reading time will you and tell me why it has to go through by 3 bucks?

Cheers
Goose

lol Goose, really to make the full benefit of this you have to read it and understand it yourself. You know someone on here once said to me - actually it was options - that you need to have your own lightbulb moment. At the time I thought "whatever, you arrogant so and so..." just tell me and save me some time!!!" but later on when I did the work myself I realised that you cannot beat the power of seeing something with your own eyes and really understanding why it works and I've always appreciated him not telling my straight off now.

At any rate, I'll tell you this once!! hahaha ;)

Basically, Livermore belived that in STOCKS priced at approximately $30 and above (Crude fits here) that pivots had to be broken by $3 (10%). This is the penetration part of his theory. It stops you buying or selling a breakout until it has been confirmed and is "acting right".

A trader at my office once told me something similar when I sold a major level breakout only to see it reverse. This particular trader liked to see the bar/candle CLOSE beneath the level on the time frame he is using BEFORE he enters.

At any rate, Livermore wanted to see a $6 move (20% of the approximate price) before he considered that a new SWING was in place. And the penetration element was $3 as I said above. Bear in mind that he always used $6 and $3 and not percentage levels.

So obviously if a price SWINGS $6 when it is trading at $100, although this was not 20% it would still constitute a move that takes him into another column e.g. natural reaction etc.

None of this made any sense to me but on the testing I have done it works. The signals it gave on stocks was nothing short of inspiring. In Crude Oil I am using the method but remember that it was actively used for Stocks and relied on two stocks combining a Key Price to make it more accurate - Livermore made no mention of using it for Commodities as far as I remember and certainly not a commodity on its own.

Anyway, it's all experimentation and I am enjoying looking at things in yet another way.

I've not actively traded it yet but noted that it looks very, very promising!

I started a thread to deal with this over in the Journal section but yes, again, it's something else I've started and not finished. All in good time :)
 
I think thegoose is questioning/highlighting the $3 move, it has just jumped up and bit me a bit about this $3 dollar move being problematic in using old trading strategies that rely on price levels for their triggers in this day and age. In livermores time and indeed right up to 2001 the fractional pricing of stocks, 1/16th of a dollar being the smallest move or put it another way, to livermore $3 was a 48 point move, to us now, today, it is a 300 point move. I'm sure the original intention of a method written for the US market pre decimalisation will be flawed if this fact is not taken into account.

"The previous system using fractions dates from the 18th century when the NYSE was founded. It was based on the Spanish dollar which was divided into eighths. Price increments were measured by sixteenths of a dollar, or 6.25 cents."

Stock Market Decimalization

Regardless of these concerns on the Market Key, I really think 300 point is far too large to leave on the table, personally believe it's more important to look for his MO was in the bucket shops, this I firmly believe to be key and not his Market Key.

Having said that Tom I'm enjoying your posts on Livermore, very interesting indeed, keep going please :D
 
"The previous system using fractions dates from the 18th century when the NYSE was founded. It was based on the Spanish dollar which was divided into eighths. Price increments were measured by sixteenths of a dollar, or 6.25 cents."

For that Grasso fully deserved his 140 million bucks. :)
 
Wouldnt it be to livermore $3 was a 3 point move. And to us a 300 point move? or $3.50 a 3 and 1/2 point move and to us 350 points. Well thats how i understood that link.
 
Do you think that it is OK for others to put a lot of work into something and then just give it away because you cannot be bothered to do it yourself ?


Paul

Paul,
I was actually going to say 'no, i don't think it is okay' but then explain my reasons

However, I've given this a little bit of thought and yes, I do think it is okay.

As far as I was aware his method was for stocks so I was interested in why Tom was applying it to crude.

Brent expires today, Light on Monday. We are near the recent lows and if was to give an indication of what could happen, then I am all for investigating.

I have spoken to Tom in the past having traded with him in a trading competition, which we were both successful in. He is well read and loves adding new strings to his bow, whereas I often see this as 'noise' and just need to stick to what I know and master my own psychology.

If i was equally sharing my experiences would it then be okay to ask the question?

I do have to admit I did ask the question a little nonchalantly but once again he was happy to divulge his understanding and I am thankful for that

Regards,

Ian

P.S Also my printer was broken and I can't read the book too well with my head tilted at the screen. :)
 
I think thegoose is questioning/highlighting the $3 move, it has just jumped up and bit me a bit about this $3 dollar move being problematic in using old trading strategies that rely on price levels for their triggers in this day and age. In livermores time and indeed right up to 2001 the fractional pricing of stocks, 1/16th of a dollar being the smallest move or put it another way, to livermore $3 was a 48 point move, to us now, today, it is a 300 point move. I'm sure the original intention of a method written for the US market pre decimalisation will be flawed if this fact is not taken into account.

LMC, I was very confused because I agree with your concerns. I don't understand how the higher the price goes, the LESS it has to retrace to call it a swing e.g. $6 pull back of a $30 price stock is 20% and that is then considered a "natural reaction" and yet $6 of a $100 stock is only 6% and yet it still classifies as the same level of swing. This seems to directly contradict what he writes in his book which is that the higher the price of a stock, the more severe the reaction even when it is a "natural" one.

But referring to your points on the demical system - doesn't the volatility expansion since Livermores time compensate for this? Having looked at the Market Key, a 48 point move would result in way too many swings being recorded. Perhaps a 300pt move is now equal to his 48pt move? Does this even make sense? My head is spinning...

I was intrigued by the Key but never dared to think it would work - not when so much time has gone by, the markets have changed and volatility has picked up...and yet the numbers I put in tell a very different story.


Regardless of these concerns on the Market Key, I really think 300 point is far too large to leave on the table, personally believe it's more important to look for his MO was in the bucket shops, this I firmly believe to be key and not his Market Key.

His strategies on the most part seemed to involve price pivots and watching the price very carefully around these areas in order to see if it was behaving properly if the price was to continue on the line of least resistance. In "How To Trade In Stocks" he mentions several such trades including round number pivots and how the stock should behave when it goes through them which is to say it should go up quickly and sharply and to sell if it fails to do this.

He also writes of buying record highs as when the overhead supply is gone, the market should presumably put in quite a rally.

So, this is where the Market Key comes in. It is not a system so I don't understand why everyone says that its a red herring or that its not the key to anything etc. The Market Key is simply a means of "charting" via the numbers. It simply tells you when a stock is BEHAVING CORRECTLY. The pivots are recorded before your eyes and of course you can quickly see the multi year highs and lows and the round numbers just like he traded. It also allows you to record the market action of two different stocks so that you are immediately drawn to discrepancies. But what I really like about it is that when you use the Key you realise that the possible buy or sell signals that you get are taken when price stalls at previous major lows (support) or breaks the low but doesn't follow through (the stock has a false break and with no follow through there is no real stock being supplied, some market players are trapped etc) and vice versa for highs.

But Livermore says in his book that the Key details only the more "complex" pivotal points and as a result it is clear to me that, as he also says, one must use it as a basis to do your own research on the field of pivots.

Livermore learnt to tape read by continously observing prices and recording them. I have always believed that by writing prices down on paper and noting the patterns they make, you can learn more than by simply looking at a chart as when people look at a chart they look at the wrong things. Many traders look at the height of the candlesticks (how much green or red they see) so they are focusing on the size of the move and the length of the trend etc but they seem to rarely focus on the actual price and its relationship to other prices.

I was talking to a trader here the other day, incidentally, that has watched ONE market, 12 hours per day for nearly the last year. The guy knew the market so well from watching the charts that he could literally draw the history of it out on several different timeframes. And yet the funny thing was is that when I asked him - he had absolutely no idea what the price was! This was a real eye opener for me.
 
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Goose,
If your viewing the book with adobe, there should be a rotate page button on the toolbar along the top.
 
if you are talking about the link i posted for the online book, then goto view at the top of the page and simply click on rotate clockwise. (y)
 
Paul,
I was actually going to say 'no, i don't think it is okay' but then explain my reasons

However, I've given this a little bit of thought and yes, I do think it is okay.

As far as I was aware his method was for stocks so I was interested in why Tom was applying it to crude.

Brent expires today, Light on Monday. We are near the recent lows and if was to give an indication of what could happen, then I am all for investigating.

I have spoken to Tom in the past having traded with him in a trading competition, which we were both successful in. He is well read and loves adding new strings to his bow, whereas I often see this as 'noise' and just need to stick to what I know and master my own psychology.

If i was equally sharing my experiences would it then be okay to ask the question?

I do have to admit I did ask the question a little nonchalantly but once again he was happy to divulge his understanding and I am thankful for that

Regards,

Ian

P.S Also my printer was broken and I can't read the book too well with my head tilted at the screen. :)

Ian,

Fair points.

I have changed the angle of the book to be able to read without head tilt if you are interested :)


Paul
 
Jaygo, Paul, Minime

Still can't do it. If I click the link from the other page it still appears on its side.

I do not see a 'view' button. On my Explorer toolbar there is a 'view' but it doesn't give the option of rotating.

I haven't viewed it in Adobe as I can't download it unless I register to the site.

Goose
 
down load a free version of adobe. i would PM you my saved copy but you still need to get adobe.

also i downloaded/saved it to my desk top, then you can do what you want to it.
 
Must read

Jesse Livermore is one of the most well known traders of all time and his biography Reminiscences of a Stock Operator is a must read for all Traders.

First published in 1923, the book chronicles adventures of Livermore, who began trading at 14 with a $5 stake, as he made and lost several fortunes. His stature was such that he was often said to move markets and even was blamed for the stock market crash of 1929.

The Book contains many gems of wisdom.

A must read

p.s. I did post this before but the link wasn't working - sorry guys.

"All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis."Jesse Livermore, How To Trade In Stocks

A truly amazing fella! RIP :innocent:
 
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down load a free version of adobe. i would PM you my saved copy but you still need to get adobe.

also i downloaded/saved it to my desk top, then you can do what you want to it.

Please see if you can send it to me, I do have adobe.

Cheers
 
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