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How to Trade in Stocks by Jesse Livermore

Challenge of Speculation

The game of speculation is not for the mentally lazy or for emotionally weak personality or for the get-rich-quick mentality. The author strictly advises them to stay away from trading as this profession would make them die poor.

 

The game of speculation should be treated as a business rather than mere gamble. Livermore advises us to keep a record of trades and study that periodically in order to determine the success and failure rates.

 

Stock investing and stock speculation can be profitable at times, but trading cannot be a reliable source of income every day or every week of the year.

 

“UNTIL THE ACTION OF THE MARKET ITSELF CONFIRMS YOUR OPINION.”

  • The author states that one should take a trade only when the stock has started moving in your direction. 
  • This means that if you have a stock that is currently trading in a range of $20-25 and you expect it to reach $50. You should not jump to buy the stock as and when it crosses $25. Wait for it to confirm the direction and let it move a bit, say to $28 and then place a buy order. 
  • Also, as long as the stock is moving as per your expectations, do not haste in squaring off the trade, i.e. do not be in a hurry to take a profit.  

“Profits can take care of themselves, not losses”

 

By this statement, the author brings home a very important concept of speculation to cut the losses short and let the profits ride.
Livermore is not a big fan of charts, rather he keeps records of his trades. We will see in the following chapters as to what these records are and what actually is the ‘Time Element’, the author has been stressing on so much.

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