Saturday, January 31, 2015

Trading Tips from Legendary Millionaire Trader: Jesse Livermore

It’s 1929 and over the last 8 years the Dow average has seen an epic rise. Everyone wants to own stock, and loose leverage requirements allow it. Stock loans reach $8.5 billion; more money than was in U.S. circulation.  In September stocks start to flatten out, then decline. In spite of many people telling him it was foolish to short this raging bull market, Jesse Livermore begins to short stock, and continues to do so as the Great Stock Market Crash of 1929 unfolds. He profited to the tune of more than $100 million dollars…about $1.384 billion in 2014 dollars, according to the Bureau of Labor Statistics. This makes Jesse one of the most iconic legendary millionaire traders in history.
This wasn’t a hedge fund manager or someone who was trading other people’s money. Jesse worked on his own, and traded his own capital. Here are some trading tips Jesse Livermore provides in his book How to Trade in Stocks (1940), and the classic book which describes his earlier trading career: Reminiscences of  Stock Operator (1923).
Trading Tips from Legendary Millionaire Trader
There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
While markets and trading technologies are constantly evolving and changing, the same patterns and emotional highs and lows continue to play out, causing some to get rich and others to lose. While most traders lose, and Jesse Livermore also had losing periods (discussed later), he established a trading system and tried to followed it. This allowed him to capture massive gains when the market trended in his direction, and also kept his risk limited if he was wrong. It was only when he deviated from this plan that it cost him money.
Here are some summary details about Jesse’s trading system:

“Only buy strong stocks in a bull market, and only short weak stocks in a bear market.”
  • Jesse Livermore was a trend trader. He focused on finding and buying the strongest stocks in a bull market, and shorting the weakest stocks in a bear market.
  • Don’t focus on too many stocks. Only focus on the strongest and/or weakest, as these are the ones moving the most and offering the most potential currently. Follow to many stocks and it’s hard to track and trade them effectively.
“It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!”
  • If there’s no clear signal to get in, don’t trade. Jesse traded at what he called “pivotal points,” which would be equivalent to a significant prior level in the stock. Until the price moved through that level, triggering a trade, he “sat tight.” This helped avoid drawing down capital when conditions weren’t ideal for trading.
“A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does damage to the pocketbook and the soul.”
  • Jesse used stop loss orders to help control risk. He made trades based on his analysis and trade setups, but no one is right all the time. Jesse Livermore set a stop loss at a price which would get him out of the trade if the trade wasn’t working out. Sometimes that would mean getting stop out at a loss, only re-enter the position again when another trade setup came along. Adhering to the original plan of the trade is very important…take the loss when your trading plan dictates you should.
“When I am bearish and I [short] a stock, each sale must be at a lower level than the previous one. When I am buying, the reverse is true.”
“Each succeeding purchase must be at a higher price than the previous one.”
  • Livermore increased his position size in winning trades–called pyramiding. When a trade continued to move in his direction, this resulted in massive gains. Learn more about the pros and cons of pyramiding: How to Pyramid Your Trades.
Great numbers of people will buy a stock, let us say at 50, and two or three days later if they can buy it at 47 they are seized with the urge to average down by buying another hundred shares, making a price of 48.5 on all.
Having bought at 50 and being concerned over a three-point loss on a hundred shares, what rhyme or reason is there in adding another hundred shares and having the worry double when the price hits 44?
“The professional concerns himself with doing the right thing rather than making money, knowing that the profit takes care of itself if the other things are attended to.”
Final Word On the Millionaire Trader His System
Jesse Livermore’s system worked well for him, making him a millionaire trader when he followed it. Though the greatest enemy in trading is one’s self. Jesse failed to follow his system on many occasions, and since he wasn’t afraid to “swing a big line” of shares or futures contracts, when he deviated from him plan it often cost him dearly. While he made several fortunes, he was bankrupt or broke on a number of a occasions. Follow your plan, it’s what made you the money, and it’s also what will help you keep it.
By 1932 Livermore was divorced (for a second time), and remarried in 1933…to a woman who’s prior four husbands had all committed suicide (?!). Livermore would also take his own life in 1940, the same year his book How to Trade In Stocks was published. Nearly all of his massive gains had been eroded by 1932. Knowing his tendencies to deviate from his plan, earlier in his life he had set up trusts so his family would always have something. At his death, the trusts totaled about $5 million, equivalent to $84.55 million in 2014 dollars.
Please share this article

Canadian Dollar In For a Rough Ride – Tim Wood – January 29, 2015

Please share this article

The Shemitah: The Biblical Pattern Which Indicates That A Financial Collapse May Be Coming In 2015

by Michael Snyder, The Economic Collapse Blog:
Does a mystery that is 3,500 years old hold the key to what is going to happen to global financial markets in 2015?  Could it be possible that the timing of major financial crashes is not just a matter of coincidence?  In previous articles on my website, I have discussed some of the major economic and financial cycle theories and their proponents.  For example, in an article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“, I examined a number of economic cycle theories that seem to indicate that the second half of this decade is going to be a nightmare economically.  But the cycle that I am going to discuss in this article is a lot more controversial than any of those.  In his most recent book, Jonathan Cahn has demonstrated that almost all of the major financial crashes in U.S. history are very closely tied to a seven year pattern that we find in the Bible known as “the Shemitah”.  Since that book was released, I have been asked about this repeatedly during radio appearances.  So in this article I am going to attempt to explain what the Shemitah is, and what this Biblical pattern seems to indicate may happen in 2015.  If you are an atheist, an agnostic, or are generally skeptical by nature, this article might prove quite challenging for you.  I would ask that you withhold judgment until you have examined the evidence.  When I first heard about these things, I had to go verify the facts for myself, because they are truly extraordinary.
Read More…
Please share this article

Linear Technology Corporation (NASDAQ: LLTC)

Linear Technology Corporation designs, manufactures, and markets a line of analog integrated circuits (ICs) worldwide. It produces power management, data conversion, signal conditioning, radio frequency (RF), and interface ICs; µModule subsystems; and wireless sensor network products. The company’s products primarily include amplifiers, high speed amplifiers, voltage regulators and references, interface, data converters, battery stack monitors, silicon oscillators and Timer Blox, phase locked loop synthesizers and clock distribution, SmartMesh wireless sensor network systems, isolated µModule transceivers, RF circuits, power over Ethernet controllers, µModule power products, and signal chain µModule products. The company markets its products primarily through direct sales staff and electronics distributors.
Take a look at the 1-year chart of Linear (Nasdaq: LLTC) below with my added notations:
1-year chart of Linear (Nasdaq: LLTC)
LLTC had steadily declined from its $51 high in April clear down to $38 in October. Over a strong rally, the stock has created an obvious resistance at $47 (blue) over the last 2 months. A break above through $47 should mean higher prices for the stock.

The Tale of the Tape: LLTC has a key level of resistance at $47. A long trade could be entered on a break through that level. However, if you are bearish on the stock, a short trade could be made on any rallies up to $47.
Please share this article

Double your Money with these Oil ETFs Where will YOU Be when Oil Prices Soar?

I bailed once I saw the writing on the wall …
Oil fell below $80, and the static between the U.S. and Saudi Arabia was amplifying. Something sketchy was going on, and I wanted no part of it.
That's not to say I ran out and jumped on the short train. Although I wish I did. The VelocityShares 3x Inverse Crude Oil ETN (NYSE: DWTI) would've been one hell of a play. Could've turned $25,000 into more than $100,000 in about two months.
Now maybe that ship has not yet sailed. Some say we could float around $40 for the next six months.
I don't know if that's true or not, but I do know one thing …(more)
Please share this article

Chevron Slashes 23% Of PA Workforce As US Rig Count Collapses To June 2010 Lows

For the 8th week in a row (something that hasn't happened since June 2009), US total rig count plunged. This week's 90 rig drop to 1543 is the largest so far (with oil rigs down 94 to 1223 - lowest since Jan 2013).  The total rig count is now down 20% in the last 8 weeks to the lowest since June 2010 as it tracks the 4-month lagged oil price perfectly. This is the 2nd biggest 8-week drop in 22 years. This - rather unsurprisingly - has led Chevron to decide to cut 23% of its Pennsylvania workforce "due to activity levels." Not 'unambiguously positive' as so many in the central planning bureaus would have everyone believe.

The Rig Count continues to plunge along with lagged oil prices...

Obviously for oil prices to eventutally stabilize, production will have to slow and rig counts plunge further.. and so will jobs...

Charts: Bloomberg
Please share this article

The Year in VIX and Volatility (2014)

This is the seventh year in a row I have offered a retrospective look at the year in VIX and Volatility, which is my attempt to cram some of the highlights of the year in volatility onto one eye chart graphic with a (somewhat) manageable number of annotations.
In aggregate, 2014 was a very quiet year for the VIX, with a mean close of just 14.19 for the year, which is the lowest the VIX has been since 2006 and third lowest since 1995. On the other hand, as I recently documented, VIX spikes were common last year, with 2014 registering the third highest number of 20% VIX spikes since the beginning of VIX data, in 1990. In short, the VIX was susceptible to large spikes, but these were typically followed by strong mean-reverting declines. For example, the peak VIX of 31.06 on October 15 was the highest VIX reading since 2011, yet just six weeks later the VIX was back in the 11s. (more)

Please share this article