Page 71 – Chart Versus Tape

Here we get an insight into Livermore’s views on the importance of health and fitness.

I never allowed pleasure to interfere with business.  There were never any shattered nerves or rum-shaken limbs to spoil my game.  I couldn’t afford anything that kept me from feeling physically and mentally fit.  Even now I am usually in bed by ten.  As a young man I never kept late hours, because I could not do business properly on insufficient sleep.

Page 75 – The Wisdom of Old Mr. Partridge

Livermore discusses the wisdom of an old trader known as Mr. Partridge.  Mr. Partridge would always refuse the advice of other traders and would let profits ride during a big swing to the upside during bull markets.  He would refuse their advice to sell and take profits by simply saying, “well, you know this is a bull market”.  Livermore attributes his own advancement as a trader to adhering to the lessons of Mr. Partridge. Mr. Partridge was espousing what we know today as ‘Trend Following’.

I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape, but in sizing up the entire market and its trend.

And right here, let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me.  It always was my sitting.  Got that? My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears in bear markets.  I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit.  And their experience invariably matched mine – that is, they made no real money out of it.  Men who can both be right and sit tight are uncommon.  I found it one of the hardest things to learn.  But it is only after a stock operator has firmly grasped this that he can make big money.

Disregarding the big swing and trying to jump in and out was fatal to me.  Nobody can catch all the fluctuations.  In a bull market your game is to buy and hold until you believe that the bull market is near its end.

One of the most helpful things that anyone can learn is to give up trying to catch the last eighth or the first eighth.  These are the two most expensive eighths in the world.

Page 84 – Livingston’s Trading Methods

Livermore discusses his trading strategy of scaling into a long position only if it is going up and scaling into a short position only if it is going down.  If prices move the other way on him, it means he was wrong to begin with and should not put good money after bad.

The point is not so much to buy as cheap as possible or go short at top prices.  When I am bearish and I sell a stock, each sale must be at a lower price than the previous sale.  When I am buying, the reverse is true.  I must buy on a rising scale.  I don’t buy long stock on a scale down, I buy on a scale up.

Page 118 – The Line of Least Resistance

Livermore talks about bear trends and bull trends and how they often move irrespective of fundamentals.

You will find in actual practice that any important piece of news given out between the closing of one market and the opening of another is usually in harmony with the line of least resistance.  The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated, and vice versa.

Page 120 – Giving the Market a Push

Livermore gives us a rule to abide by when the market is trading in a narrow range and when there is no clear direction on prices.  He says not to try to anticipate the next big move, but to wait while the market is in the narrow trading range, and then to follow the direction when it finally breaks down or rallys above the narrow trading range.

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