Basically I
was planning write about Nicholas Darvas, who invented the box theory and made
fortune on the market, But my last blog was so popular about Jesse Livermore so
I want share more details about him.
All in all
I wanna write here about his trading technics, which is fully can be found in
his book How To Trade In Stocks, which was inspired by his son. I call this
book a must read book, If you read you will understand better how the markets
generally works. When I have read that I already had passed few years with
trading, but it really changed my approach to the markets. It was for me
personally a real revelation. So I am
not only recommending this book for beginners bor for pro’s as well.
At his age
there was no any computers, so he only used his notes about the price movements
mosty on stocks and commodities. He marked all price movements and looked for
similarities in the past and the present. He was a price pattern trader at all.
So that is one of the reason why he is still relevant today, beacuse the price
movemnet nothing has changed this is a infinity rule at all.
On the
other hand he was a genious trend follower, he did’nt want to create the trend
he only wanted to follow that one, and try to avoid the ranging markets. He
only traded the breakouts of ranging markets. Only entering in new highs or in
new lows. He used his “PIVOTAL POINT” When it was broken he bought or sold. He
mentioned in the book, when he was too early and opened the postion before the
pivotal point occured, he lost all the time. And what he learned from that
loss? Do’nt do that again, be disciplined, do’nt break the rule. This is today
still a brilliant statement.
If he was
in a winning postion he started to build up pyramids, so increased the postion
side if he gains, but never inscreased the size if he lost. Never added to a
losing trade!!!
He also
cheked all the time the volume. If any breakout occured without significant
volume he did’nt trade that. He preferd if the volume came into the market
direction of the market.
And finally
he was absolutely aware of the importance of timing. All of us have had this
kind of experiment, basically our hypothesis was good but we did into our
postion too early or too late. He absolutely believed in that there is no
better timing signal than the price itself. If the price doing nothing he
did’nt trade and kept flat.
His system
is so simple, but I do beleive it still working because he used only the same
rules which still today protects you from big losses. And these rules I guess
going to be with us forever.
Next time I
am gonna collect best rules of Jesse Livermore.
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