Who is Jesse Livermore? The Great Trader's Story

So just who is this old geezer that I use as my display pic and what makes his story so special?

Jesse Lauriston Livermore. That's who.

Livermore was born on July 26, 1877 and lived through until November 28, 1940... when he committed suicide in 1940... by blowing his own brains out .

The man lived a life of brilliance, genius, excess, bankruptcy and depression. Keeping himself surrounded by mistresses, scandals and not to forget money, the man legendarily traded BIG size which led to millions of dollars in profit and just as many millions of dollars in losses.

What a life. What a story. What a worthy character to grace the top of my social media platforms and a story that deserves to be told on Steemit.

The Life of Jesse Livermore

The Early Years

Jesse Livermore's life is truly fascinating. Whether you're in the trading business or not, it's the human story that is the drawcard.

Livermore was born and raised in Massachusetts, USA to a homemaking mother and a farming father. When he hit his early teens, Livermore knew that farming wasn't for him and was forced to essentially run away from home to escape living in his father's shadow.

The beauty of the stock market for so many is that you don't need any prior experience or formal training to make money. This is the Jesse Livermore story to a tee. An outsider to the world of trading and high finance. Essentially a small town, country boy hitting it big through sheer guts and determination.

After leaving home as a teenager and moving to Boston with the sole intention of making a fortune from the markets, he took a position posting stock quotes for the Paine Webber brokerage firm. By age 15, after having traded for himself for several years, Livermore had amassed profits of $1,000. Now of course the pre-inflation early 1900's numbers don't have the same ring to the big numbers that we are used to today, but doing some basic conversions puts that at around $30,000. For a kid, essentially punting on stocks, this is HUGE.

Back then teenagers obviously couldn't log into their iPhones and access any stock market CFD in the world with a click of a button. Livermore instead had to earn his money early in his investment career by betting against retail houses that they called “bucket shops”. These investment houses allowed customers to make wagers on the price of a stock, just like a CFD, but as an over the counter cash in hand transaction with what is essentially a bookmaker.

Although Livermore had no formal financial or economics education, he traded so well that all of the bucket shops in Boston banned him! Something that those of you who have traded profitably with an unregulated, market maker broker can empathise with, I'm sure.

A True Independent Trader

The enormity of Jesse Livermore's success becomes even more staggering when you consider that he traded on his own, using his own funds and his own system. There was no corporate setup or funding. This was a pure independent trader battling against the markets head on and alone.

After the bucketshop days, it was time to step up his game and take his trading to the big time pits of Chicago. Livermore's first big win was after the Panic of 1907 when he shorted the market just as it crashed. It's this market timing that we was famous for and this was a huge start to the next step of his career.

He noticed conditions where a lack of capital existed to buy stock. Accordingly, he predicted that there would be a sharp drop in prices when many speculators were simultaneously forced to sell by margin calls and a lack of credit. With the lack of capital, there would be no buyers in sight to absorb the sold stock, further driving down prices. Simple supply and demand, but absolutely brilliant and gutsy to pull off the trade with size.

But as all we all know, the trading psychology of taking a winner makes it so hard to keep your profits. It's only human to get complacent and so often when a trader has a win, they back it up with a loss. Of course this is what happened to Livermore, who then proceeded to lose 90% of that 1907 fortune on just a single blown trade in cotton. Ouch.

From here it was all downhill. Livermore continued losing money in the flat markets from 1908–1912 and ended up $1 million in debt and declared bankruptcy. You'll see why this was even more gut wrenching when you read his trading rules that he obviously broke in the section below, but one thing about Livermore was that he was always the first one to put his hand up and take responsibility for his loss. There was no blaming the market or a broker like you hear losers say today. As a trader, you live and die by your own decisions and that's the bottom line. I have a lot of respect for the way Livermore handled losses in this regard.

But he wasn't done there! He proceeded to regain his fortune and repay his creditors during the World War I bull market, a period during which he was correctly bullish on stocks.

Livermore then continued to make money in the bull markets of the 1920s. In 1929, he noticed market conditions similar to that of the 1907 market that he cleaned up in and began once again successfully shorting the market. When just about everyone in the markets lost money in the Wall Street crash of 1929, Livermore was worth $100 million after his short-selling profits. Can you see the man has guts yet?

But once again... Yep, you guessed it. Livermore lost it all. Thus, on March 7, 1934, the bankrupt Livermore was automatically suspended as a member of the Chicago Board of Trade. It was never disclosed to anyone what happened to the great fortune he had made in the crash of 1929, but all that mattered, was that it was in fact gone.

From here, with his work and passion over, on November 28 1940, Livermore fatally shot himself in the cloakroom of the Sherry Netherland Hotel in Manhattan. Police found a suicide note of eight small handwritten pages in Livermore's personal, leather bound notebook. The note was addressed to Livermore's wife Harriet (whom Livermore nicknamed "Nina") and read:

“My dear Nina: Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie”.

Just horrible.

Why Jesse Livermore?

So why has Jesse Livermore become this cult hero to traders like me? As you read above, he was literally a trading cowboy, who totally ruined his personal life as a result and then blew his own head off because it all got too much!

Well for one, at his peak in 1929, Jesse Livermore was worth $100 million. The enormity of his success becomes even more staggering considering that he traded on his own, using his own funds, his own system, and not trading anyone else's capital! Traders can relate to that. This is the end goal for so many.

One of my favourite Jesse Livermore stories was how he famously shorted Union Pacific railroad right before the 1906 San Francisco earthquake. People literally thought he could tell the future!

The popular book Reminiscences of a Stock Operator by Edwin Lefèvre, is in effect a financial memoir of Livermore (although for the book, a pseudonym is used) starting with the bucketshop days and ending in the 1920s before the crash. The book, which Lefèvre dedicated to Livermore, has an avid following in the trading community, and is still in print today. If you find this cover in your travels, I highly recommend checking it out:

Livermore himself wrote a less widely read book, How to trade in stocks; the Livermore formula for combining time element and price. It was published in 1940, the same year Livermore committed suicide.

Heavy, right...

Jesse Livermore's Trading Strategy

The following is a summarised list of Jesse Livermore's trading strategy:

· ALWAYS trade with the trend. Buy stocks in a bull market, short stocks in a bear market.
· Don't trade when you don't see opportunities that match your strategy.
· Trade at good market areas only.
· Wait for the market to confirm opinion before entering.
· Let profits run and cut losers immediately!
· Trade with a stop loss and always respect it.
· Exit trades when the trend has come to an end.
· Trade only the strongest stocks in a bull market, or the weakest stocks in a bear market.
· Don't average down a losing position.

"Jesse's rules stipulated waiting until the pivotal point was in play in order to trade. For example if it bounced up off the $50 level, he would enter long at $52, closely watching the $60 level, which is also a "pivotal point."

“A rise above $60 would trigger an addition to the position (adding into winners) while a failure to penetrate or hold above $60 would result in a liquidation of the long positions.”

Does this sound familiar? That is how I trade!

For all the absolutely fucked up shit that has happened to Jesse Livermore, the man is relatable on a human level and this is why I have chosen his image as my display pic.

Jesse Livermore Quotes

When I changed my Twitter profile photo, I actually started a Tweet thread of his quotes that jump out at me.

Click the image above and read the thread. I will continue to add to it when I need a dose of Jesse Livermore inspiration in my trading.

I hope you can draw something positive from the life and story of Jesse Livermore. Upvote and leave something in the comments about Livermore below.

Peace.

With help from Wiki and Investopedia