One image to understand: What is Position Management, the speculation king Livermore's breakthrough buying method:

(1) First buy 20%;
(2) Suppose you buy a wrong one, and immediately stop the loss if it falls by 10%, and the loss amount is 2% of the total position;
(3) Assuming the purchase is correct, increase the position by 20% immediately after a 10% rise;
(4) If it rises another 10%, immediately add 20%;
(5) Finally, add 40% directly;
(6) Expand the results of victory, and then hold as long as it does not drop below 10%;
(7) Sell the entire position immediately once it drops by 10%.

The essence lies in finding high-probability opportunities to operate; most of the time, the market is in a state of waiting, and one should minimize trial and error costs to the greatest extent.

However, this is suitable for building positions in strong coins/stocks during a bull market, and is not applicable for volatile markets.

1️⃣What is Jesse Livermore's core investment philosophy?

Let me summarize briefly:
🔺Trend is King: He emphasizes the importance of following market trends, believing that there are clear upward trends in bull markets and downward trends in bear markets. Investors should identify and follow these trends to avoid going against the market.
🔺Risk Control: He emphasizes stop-loss and capital management, setting stop-loss points for each trade to prevent losses from expanding, and reducing risks through diversified investments and position control.
🔺Independent thinking and patience: He advocates for analyzing the market independently, without relying on others' opinions, and patiently waiting for the right trading opportunities, such as price breaking through key resistance levels or retracing to support levels.

2️⃣Let profits run concept
This is also one of Livermore's core investment philosophies.
When a trade starts to profit, he will not hastily close the position for profit due to short-term price fluctuations or minor pullbacks.

He believes that profits should grow as much as possible under the drive of trends, just like allowing a galloping steed to run freely on a racetrack without obvious obstacles.

As long as the market trend has not changed, one should hold profitable positions until a clear reversal signal appears. This concept reflects his trust in trends and his pursuit of long-term investment returns.

3️⃣Trend Judgment and Following the Trend
(1) Recognizing the Trend
Livermore believed that making big money relied on the overall market trend rather than individual stock fluctuations. He actively identified the main trends of the market and the line of least resistance, without being constrained by the conventional thinking of "bull market" and "bear market." For example, he shorted before going long in 1907 and shorted near the high price in 1929, both of which were highly profitable.
Follow the trend: Buy during a bullish market, sell during a bearish market, and align with the market direction. When there is no clear market trend, choose to wait and take action only after the trend is clear.
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(2) Timing Control
Waiting for key points: Livermore patiently waits for trading key points, such as buying Bethlehem Steel, waiting 6 weeks until the stock price breaks 100 points before buying.
Act after confirming the trend: do not enter the market prematurely, wait for market changes to confirm the viewpoint before taking decisive action.

(3) Capital Management and Position Control
Trial operation: first test with a small Position, such as buying 20% of the planned Position, increase the Position if profitable, and stop loss if the loss reaches a certain percentage (e.g., maximum 10%).​
Reject loss averaging down: Do not increase your position when in loss to dilute costs and avoid further losses.
Diversified Investment: Do not concentrate funds in one place to reduce the risk of putting all your eggs in one basket.
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(4) Strict Stop Loss and Take Profit
Cut losses decisively: Set a stop-loss point, such as a maximum loss of 10% per trade, and clear positions unconditionally to prevent losses from widening.

Let profits run: When stocks rise, do not fear pullbacks, think about the reasons for the rise, do not rush to sell, and let profits continue to grow.

(5) Independent Thinking and Reverse Thinking
Independent analysis and judgment: Do not easily trust rumors and rely on your own research for decision-making. Previously suffered losses from believing others' suggestions, after which I became more independent and even used rumors to my advantage.
Reverse thinking: be skeptical of the market's general view and look for trading opportunities that are contrary to market consensus.

(6) Trading Sentiment Management
Stay calm and rational, avoiding greed and fear from affecting your decisions. Develop a strategy before trading and adhere to it strictly, without acting blindly or impulsively.

3️⃣Livermore's success case

(1) Operations during the stock market crash of 1907

- Background: In 1907, the American financial market faced a severe crisis, with a significant drop in the stock market. The market environment at that time was filled with panic, banks experienced runs, and many financial institutions were on the brink of collapse.

- Operation Process: Livermore noticed the market's vulnerability and the trend of an impending collapse. He began to short stocks, borrowing shares to sell, anticipating that prices would fall. As panic spread throughout the market, stock prices indeed plummeted as he expected. When the market dropped to a certain level, nearing the bottom, he reversed his position and went long. Through this strategy of shorting first and then going long, Livermore made millions during this stock market crisis. This not only demonstrated his precise judgment of market trends but also showcased his ability to time his reverse operations.

(2) Bethlehem Steel Stock Trading

- Background: At that time, the steel industry held an important position in economic development, and Bethlehem Steel Corporation was a significant enterprise within the industry.

- Operation Process: Livermore was very cautious when trading Bethlehem Steel stock. He waited for 6 weeks, constantly observing the stock's price trends and market sentiment. Only when the stock price broke through the integer level of 100 points did he believe it was a key buying signal, and he decisively bought in. Subsequently, with the development of the steel industry and the improvement of the company's performance, the stock price continued to rise. Livermore achieved substantial profits by patiently waiting for the right moment and entering the market after the trend was established.

(3) Short Selling Operations During the 1929 Stock Market Crash

- Background: In the 1920s, a huge bubble appeared in the US stock market, hiding a crisis beneath the facade of economic prosperity. Stock prices were overvalued, and market sentiment was extremely optimistic.

- Operation process: Livermore, leveraging his years of experience and keen insight, sensed that the market bubble was about to burst. Near the peak of the stock market in 1929, he began to short stocks on a large scale. When the market crashed and stock prices plummeted, he made a huge profit of nearly one hundred million dollars from it. This operation is considered a classic in his trading career, showcasing his exceptional talent in trend judgment and decisive action, as well as his profound understanding of the overall market environment.

At the peak of his career, Livermore had the most beautiful office in all of New York, located at 730 Fifth Avenue, complete with his private elevator. Every time the New Year approached, Livermore would lock himself in a private vault for three days, sitting among tens of millions of dollars in cash, carefully reviewing the reasons for his past trading failures.

His life was full of ups and downs, experiencing bankruptcy four times, yet he managed to make a comeback each time, earning him the title of a Wall Street legend; in the stock market that has lasted over 100 years, Livermore traded for nearly half a century.

On November 28, 1940, Jesse Livermore, the legendary figure on Wall Street, arrived at the Shirley Holland Hotel in New York to identify his father's body. Looking at his father's body, he broke down minutes later and committed suicide in the bathroom, ending his 63-year life.

Before he died, he left a note with messy handwriting: "My life is a failure." There are many comments about his life, but one is the most fitting: the greatness of a lifetime, the madness of a lifetime. — "Reminiscences of a Stock Operator"
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