Jesse Livermore + Paul Tudor Jones' Principles and Quotes
@SJosephBurns: Trade a position size that allows you to be in a trade long enough to be right & not be shaken out by noise but only when u are proven wrong.
“It was never my thinking that made the big money for me, it was always my sitting.”
“Limit interest in too many stocks at one time. It is much easier to watch a few than many.”
"As long as a stock is acting right, and the market is right, do not be in a hurry to take a profit. You know you are right, because if you were not, you would have no profit at all. Let it ride and ride along with it. It may grow into a very large profit, and as long as the “action of the market does not give you any cause to worry,” have the courage of your convictions and stay with it.”
“It is foolhardy to make a second trade, if your first trade shows you a loss. ” “Never average losses. ”
“Profits always take care of themselves but losses never do. ”
“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”
1. Nothing new ever occurs in the business of speculating or investing in securities and commodities. 2. Money cannot consistently be made trading every day or every week during the year. 3. Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion. 4. Markets are never wrong – opinions often are. 5. The real money made in speculating has been in commitments showing in profit right from the start. 6. As long as a stock is acting right, and the market is right, do not be in a hurry to take profits. 7. One should never permit speculative ventures to run into investments. 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. 9. Never buy a stock because it has had a big decline from its previous high. 10. Never sell a stock because it seems high-priced. 11. I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction. 12. Never average losses. 13. The human side of every person is the greatest enemy of the average investor or speculator. 14. Wishful thinking must be banished. 15. Big movements take time to develop. 16. It is not good to be too curious about all the reasons behind price movements. 17. It is much easier to watch a few than many. 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. 19. The leaders of today may not be the leaders of two years from now. 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. 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.
-The quality of his trade entries is something he did based on price movement. He traded price action not fundamental valuations. -His rules said to cut losses quickly when wrong and keep losses small. This freed up capital to deploy for better opportunities and avoided big losses.
Jesse Livermore's Downfall:
1. Letting losers run: Many times he did not cut his losses. “I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.” – Jesse Livermore
2. Over Trading: “What beat me was not having brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.” – Jesse Livermore
3. Following tips: “Gradually, as I began to accept his facts and figures, I began to fear I had been basing my previous position on misinformation. Of course I could not feel that way and not cover. And once I had covered because Thomas made me think I was wrong, I simply had to go long. It is the way my mind works.” “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.” – Jesse Livermore
4. Risk of ruin: From the quantity of his account blow ups and personal bankruptcies it appears that he did not understand the mathematical risk of ruin based on winning percentage and the loss of capital per trade.
5. Position sizing: The sheer size of his astounding wins at key times shows that he did not really have a position sizing model to limit his exposure to risk, he was likely all in with leverage on his biggest wins. Which results in inevitable account blow ups.
6. Discipline: In his writings he seems to always hint that he had trouble following his own rules and advice and lost money when he didn’t follow his own plan.
7. Lavish lifestyle: Livermore spent money lavishly on his lifestyle with mansions, vacations, and the best things money could buy. He had no number that allowed him to ever really retire and enjoy his wealth. He continued to trade with full size and aggressively through his career.
8. Mental risk of ruin: In the end, for whatever reason he ended his life. The stress and strain of trading, finances, and his personal life probably took its toll.
Paul Tudor Jones’ 21 Trading Principles
1. It is possible to see that a market is dramatically overbought and prepare for, and then capture, huge gains after the sell off. 2. Risk small amounts to make big profits. 3. Bet against times when numerous leaders must agree. 4. Long hours and a strong work ethic are keys to being a successful trader. 5. While it is good to trade any market that will turn a profit, specializing in a market can lead to great success. 6. The markets go down faster than they go up. 7. If the market will not go down during bad news, it will likely go higher. 8. The stock market moves in patterns and in cycles. Past price patterns repeat themselves due to human emotions. 9. Many times traders think a big position order size means that a whale knows something, most times they do not. 10. It is okay to skip a trade if you can’t get your entry price. 11. A momentum move does not just stop, it takes time to roll over. 12. It is possible to trade successfully by gaming the actions of other traders. 13. Be aggressive at high probability moments. 14. Always stay in control of your trading and manage risk. 15. Focus on risk management as the #1 priority in trading. 16. Having the right mindset during a big loss that it is just temporary, is the key to coming back and being successful. 17. Letting profits run is sometimes a great plan. 18. Being long at all time highs in the indexes is a great strategy. 19. Great money managers trade with passion. 20. Even Market Wizards have doubts about winning when entering a trade. 21. When the top in a market is reached, there is a lot of money to be made shorting as panic selling sets in.