Sunday, December 03, 2006

Am I Crazy? I Disagree With the Great Jesse Livermore

Today I was going over my my journal notes over the past twelve months. One of the things I always note when I log my trades is whether my trade went against the market and sector trends, and if the market is trending or range bound. Surprisingly,whether I traded with or against the market trend made little difference in my trade results. This took me back to a post I made to my old blog:

I am currently reading How to Trade Stocks by Jesse Livermore, one of the greatest traders the world has ever known. In the coming weeks I'll post some nuggets from the book. First off, here is a quote that many traders live by, but I tend to disagree with:

There are times when money can be made in stocks, but money cannot be
consistently made by trading every day or every week during the year. Only
the foolhardy will try it.

Basically, Livermore believed you should only trade individual stocks when the broader markets give signals and are trending (in either direction). The rest of the time you should be in cash. While I do agree that is the optimal time to trade, there are many ways to make money, and decent gains can be made in range bound markets. You just have to play the market differently. Livermore was a breakout trader, which works great for trending markets. Of course breakout trading isn't going to work as well in a market like we have right now, which is why you have to adjust your game plan accordingly. There is a lot of money to be made buying pullbacks of breakouts and playing support and resistance levels. Money that couldn't be made if you sat on your hands waiting for a trending market.

Mr. Livermore may call me foolhardy, but my portfolio hardy thinks I'm a fool :)


Sharif said...

one can see that you are successful in this market environment. But I must admit I don't get your trading philosophy...can you elaborate a litlle bit more about your trading rules and main principles?
thanks and gratulations for your great work.

wincity said...

Agree with you that one can make good money ignoring the market. Actually that's my goal. I trade from the short side almost exclusively. Have made money consistently in the last few months even when the market is making new highs daily.

The Market Speculator said...

I trade a lot of different setups. More important than the setups, I pay alot of attention to where money is moving (sector analysis), volume, support and resistance. A while back I posted a couple of setups that I use. I plan to post more. Also, viewing some of the annotated charts should give you a good idea.

The Market Speculator said...

I'm curious Wincity,
Where do you stand on Rex Grossman? Just kidding. My question for you is, why do you short exclusively?