The Mind of a Trader: Jesse Livermore

Livermore is considered one of the best traders of history, and his secret to success was his mindset toward the market and trades. While there are numerous inspirational quotes attributed to him, one of the most interesting ones is as follows. Let’s dive into Livermore’s mind… and feelings!

Jesse Lauriston Livermore was born in the United States in 1877. Considered a pioneer of day trading, he gained fame for shorting the market, earning him the nickname of “Boy Plunger”.

Some of his legendary trades, such as shorting the market before the 1906 San Francisco earthquake and just before the 1929 Wall Street crash (black Tuesday, October 29), are still talked about among traders todays.

He was the main character of Reminiscences of a Stock Operator, by Edwin Lefèvre, a book that describes some of Livermore’s best trades and his approach to feeling the market. One of the most valuable lessons in this insightful book is as follows:

“It is inseparable from human nature to hope and fear. In speculation, when the market goes against you, you hope that each day will be your last day- and you end up losing more than you should have had you not listened to hope-. When the Market goes your way, you become fearful that the next day will take away your profit, and you exit too soon.

Fear keeps you apart from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts.

He has to reverse what you might call his natural impulses. Instead of having hope, he must fear; Instead of fearing he must hope.

He must fear that his loss may develop into a much bigger loss, and hope that his profit may become greater. It is absolutely wrong to trade the way the average trader does.”

This was a magnificent way to explain what we often hear about “cut losses quickly and let profits run”, something that seems simple and logical but is rarely achieved.

PS: Read that book!