Machiavelli - The Ends Justifies the Means

Jesse Livermore Rules for Money Management

Text written by Alton Hill co-founder of Tradingsim.com


For all of those who may not know Jesse Livermore, he was one of the greatest traders of the 20th century. He started out in bucket shops and was later able to amass a fortune equivalent to billions of dollars today. Livermore's rules for trading were sound and have sparked interest in the trading community for the last 75+ years. In this article, we are going to discuss the money management rules Jesse Livermore used when trading. These money management principles are just as valid today as they were when the market crashed in 1929.

Rule 1: Don't Lose Money

This is a simple of enough concept right? Well if it was this easy, we all would be millionaires. However, Jesse Livermore is laying out the basic tenet that a "speculator" should do everything in their power to stay in the trading game. So, one should not place all of their funds in one position. Also, it is not in the best interest of a trader to establish their entire position at once. Jesse Livermore believes that traders should enter trades in lots, where you would purchase your first 25% of shares at a pivot point and then continue to add to this position until you are able to take a full stake. The goal here is to add to a position as it goes in your favor, which again will prevent the loss of funds, because if you are wrong you can easily exit the position. This may work well for larger investors, or investors with longer timeframes, but I do not think this will work well for day traders, as this will dramatically increase your trading costs.

Rule 2: Always establish a stop

Jesse Livermore stated that a stop is one of the most important parts of trading. Livermore felt that a stop should be established prior to entering a trade. This stop should take in account for the size of your account and the volatility of the stock you are trading. Livermore's personal rule was that he would not risk more than 10% on any one trade. Livermore also stressed the fact that your stop, if hit should not generate a margin call. He felt that the last thing a trader should do is fund their account for a margin call. This is a recipe for producing massive losses, which is a direct contradiction of Rule#1. Livermore called traders who did not establish stops, "Involuntary Investors". Livermore described involuntary traders as people who buy and hold a stocks in hopes that they will rally. These traders will not sell their stocks for any reason until their targets are met."

Rule 3: Keep cash in reserve

Livermore felt that cash is king. A trader without cash is equivalent to Blockbuster with no movies. Livermore stressed that traders must fight the urge to constantly be in a position. This desire to constantly trade will tie up capital, that should be used for more promising opportunities. So, Jesse Livermore felt that a traders should always keep a portion of their account in cash, so that you are armed to take what the market offers you. Patience is the key to success, not speed.

Rule 4: Let the position ride

This for me is the hardest part of trading. I will at times put on two or more losing trades, which then affects my perception of risk and the market. Then on my fourth trade or so, I will put on a position and close it out right before it gives me a huge gain, because I have been conditioned to now believe that the market is only offering small moves. This part of trading, is proving to be my own personal struggle. Livermore believed that a trader that is able to keep their losses small and let their winners run would ultimately be successful at the game. He felt that if you were right in your position and nothing about the trade told you otherwise, that you should hold that trade as long as possible. Traders should be overly concerned and monitoring losing positions, but with winners, you should just let them run. Now this rule does not have any place for apathy. You should not go out and simply buy and hold a position forever. Remember, even with winners, you still must have a stop in place, do not forget money management Rule #2.

Rule 5: Take the profits in cash

Jesse Livermore felt that after a huge winning trade, you should take 50% of that and place it in cash. This money should be put aside in the bank, hold it in reserve, or lock it up in a safe-deposit box. I do not necessarily agree with this money management rule, because if you treat your investment wins as if they are going to eventually leave you, this must have some affect on your subconscious, which in turn will hurt your profits. I think if you put aside maybe 20% and then treat yourself to a nice dinner or a small shopping spree is better because it provides you positive reinforcements of your trading activities.

It is a shame that Jesse Livermore was unable to follow his own money management rules, because if he had, maybe his life would not have ended so tragically.

- See more at: http://tradingsim.com/blog/jesse-livermore-money-management/#sthash.xpjKmLch.dpuf

http://investorji.in/jesse-livermore-money-management.html

Wall Street fallacy

If Stock Brokers were so good at investing Money they would be richer than you and they wouldn't work for you!

Change yourself

Do today = can tomorrow

How to start

Mark Cuban mantras for success

Bill Gates view on Fortune

Best advices given to Victoria Aveyard

The best piece of advice ever given to the young, smart, talented and beautiful YA (young adult) fantasy author and screenwriter Victoria Aveyard.

Victoria Aveyard (AKA the new Queen of Dystopian fiction): "It’s very freeing to know you can write a story that can be as big as your own imagination." 

She got two, both from USC (University of Southern California) professors.

The first:
The spider doesn’t know which part of the web will catch the fly. 


The second:
Good luck is an opportunity you’re ready and prepared for, bad luck is an opportunity you aren’t.


We can all be inspired by this two quotes very rich in meaning and signification. 




Sources:
https://screencraft.org/2014/09/29/10-questions-with-victoria-aveyard/ http://www.theguardian.com/childrens-books-site/2016/mar/14/victoria-aveyard-red-queen-glass-sword-interview

Leah Busque wisdom

JR Ewing Quotations

Mr. Burns business tips

Mr. Burns: "I'll bide my time. Revenge is a dish best served cold."

Mr. Burns: "Look Smithers, a blue-collar bar. Let's go slumming."

Mr. Burns: "This is the type of trickery I pay you for."

Mr. Burns, after turning on his lamp: "Ahh!! 60 watts? What do you think this is, a tanning salon!?!"

Mr. Burns: "What good is money if you can't use it to strike fear into the hearts of men."

Mr. Burns: "It's ironic, that this anonymous clan of slack-jawed troglodytes has cost me the election, and yet if I were to have them killed, I would be the one to go to jail! That's democracy for you."

Mr. Burns: "Oh, so mother nature needs a favor? Well, maybe she should have thought of that when she was besetting us with droughts and floods and poison monkeys."

Mr. Burns: "I don't have the strength to take it out on you, Smithers."

Mr. Burns: "I'll keep it short and sweet. Family. Religion. Friendship.
These are the three demons you must slay if you wish to succeed in business."

Mr. Burns: "Cheating is the gift man gives himself."

Mr. Burns: "My voice is giving out so I'm going to poke you for an hour or two."

Mr. Burns: "You sold weapon-grade plutoneum to the Iraqies without a mark up."

Mr Burns: "Oh, yes, sitting---the great leveler.
From the mighiest pharoh to the lowliest peasant,
who doesn't enjoy a good sit?"

Mr. Burns: "Restore my office, cancel all repairs,
and rehire that chap (Homer Simpson) who sassed me in the bar."
Smithers: "But why?"
Mr. Burns: "Because I keep my friends close, and my enemies even closer."

Smithers: "There is a small boy on the grounds."
Mr. Burns: "Release the hounds."

Source: http://www.callycumla.com/mr_burns.htm

Jordan Belfort vs Gordon Gekko

    

“Of all the drugs under God’s blue heaven, there is one that is my absolute favourite,” he says as the camera trains on DiCaprio cutting an enormous line with his credit card. “Enough of this shit will make you invincible — able to conquer the world and eviscerate your enemies,” he explains, staring at the drug. Unfolding the hundred-dollar bill he’s just used to snort powder up his nose, he clarifies that he’s talking about the money.

GEKKO VS THE WOLF: THE FATTEST LINES

Gordon Gekko

• “The point is, ladies and gentlemen, that greed, for lack of a better word, is good.”
• “What’s worth doing is worth doing for money.”
• “It’s all about bucks, kid. The rest is conversation.”
• “Lunch is for wimps.”
• “We make the rules, pal. The news, war, peace, famine, upheaval, the price per paperclip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it.”
• “If you need a friend, get a dog”

Jordan Belfort

• “Money doesn’t just buy you a better life, better food, better cars, better pussy — it also makes you a better person.”
• “The year I turned 26 I made $49 million, which really pissed me off because it was three shy of a million a week.”
• “I am not gonna die sober!”
• “I’ve been a poor man, and I’ve been a rich man. And I choose rich every fucking time.”
• “My Ferrari was white like Don Johnson’s in Miami Vice, not red.”

Source:
http://www.standard.co.uk/lifestyle/london-life/the-wolf-of-wall-street-why-londons-bankers-love-reallife-fraudster-jordan-belfort-9064038.html