TRADING PSYCHOLOGY (2)

It is often mentioned that we have to master our TRADING PSYCHOLOGY before we can become successful stock operators; meaning, we have to pay more attention to managing our emotion and patience in order to manage the greed and fear of stock trading.

Further to the last article about this book:-

REMINISCENCES OF A STOCK OPERATOR by Edwin LeFevre
to Jesse Lauriston Livermore

The author LeFevre wrote the book in person of a trader called Larry Livingston, as a nom de guerre for Jesse Livermore who was one of the greatest stock speculators ever. From 14 years old until the day Livermore died, he made a living, became multi rich, bankrupt and rich again through nothing but trading in the stock market as well as commodities. Of course the rules of trading had changed tremendously but the human nature is still the same.

For those finding difficulty to read the book in its entirety, the highlights in the excerpts from the book are as follow:

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Chapter 5 – matter of timing

I had to study what was going to happen; to anticipate stock movements.

It was the change in my attitude toward the game. It taught me little by little the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating.

Everybody knew that the way to do was to take profits and buy back on reactions. And that is precisely what I did; for I often took profits and waited for a reaction that never came. And I saw my stock go up ten points ….

In big bull markets the plain unadulterated sucker buys blindly because he hopes blindly. He makes most of his money until one of the healthy reactions takes it away at one fell swoop.

Disregarding the big swing and trying to jump in and out was fatal. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study the general conditions and not tips or special factors affecting the stock.

Chapter 7 – market movers

That is why I never buy stocks cheap.

It is plain that nobody can sell unless somebody wants those stocks. He (*big boy) will have to wait until he has a market there to take it.

He has to sell when he can, not when he wants to.

In starting a movement it is unwise to take a full line …. Remember that stocks are never too high for you to begin buying or too low to begin selling. 

After the initial transaction, don’t take a second unless the first shows you a profit. Wait and watch.

Much depends upon beginning at exactly the right time …. not to buy it all at once …. that he is in wrong, it is temporarily.

 Chapter 10 – market trend

Millions have been lost by men who bought stocks because they looked cheap or sold them because they looked dear. The speculator is not an investor. His object is NOT to secure a steady return …. but to profit by either a rise or fall in the price of whatever he may be speculating in. Therefore the thing to determine is the speculative line of least resistance at the moment of trading; when the line defines itself, because that is his signal to get busy.

Any important piece of news given out between the closing of one market and the opening of another is usually in harmony with the line of least resistance. The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated ….

I can give you this rule: In a narrow market, move within a narrow range, there is no sense in trying to anticipate what the next big movement is going. The thing to do is to watch the market, determine the limits of the get-no-where prices until the price breaks through the limit in either direction .... never argue with it or ask it for explanations.

When the market goes against you, you hope that every day will be the last day – and you lose more …. and when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Reverse your natural impulses – instead of hoping you must fear; instead of fearing you must hope. Fear that your loss may develop into a much bigger loss; and hope that your profit may become a bigger profit.

Chapter 12 – discussion with Percy Thomas, a stock market analyst

I could not deny their authenticity, but they did not shake my belief……

until I could no longer felt sure of my own information as gathered from the trade papers. That meant I could not see the market with my own eyes. A man cannot be convinced against his own convictions but he can be talked into a state of uncertainty and indecision for that means that he cannot trade with confidence and comfort.

I cannot say that I got mixed up but I lost my poise: I ceased to do my own thinking….

Instead of standing or falling by my own observation and deductions I was merely playing another man’s game….

I not only bought when I had no business to be bullish but I did not ….

I was not trading right. Having listened, I was lost.

I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out.

Chapter 14 – loss over a million, bankrupt and finally repay all debts

In every one of them I lost money. It served me right, because I was trying to force the market into giving me .… when I finally stopped trading on credit I owed well over a million dollars.

Everything seemed to have gone wrong …. the descent from millions and yachts to debts and the simple life.

I would never be able to accomplish anything as long as I am worried, so long as I owed money. I must go through bankruptcy.  

In February 1915, Dan Williamson offered me a credit of 500 shares.

 …. I found myself at the most critical period of my career …. if I failed this time I might not get another try …. must wait for the exact psychological moment …. for 6 long weeks …. I got 500 shares at 98 to 99 ….. next day was 145 ….

There is a great deal in starting right ….

When I returned to New York in early 1917 I paid back over a million dollars I owed.

 And that is how I came back.

After I paid off my debts I put a fair amount in annuities ….put some in trust for my wife …. No matter what I want that trust holds .…. safe from my market needs, take no chances.

Chapter 16 - tips

How people want tips! They crave not only to get them but to give them. There is greed involved and vanity……………..

(read this chapter: all about tips from the author’s point of view. Very interesting!)

Chapter 20 – stock market manipulator

This chapter describes a bit about market manipulators. Quite informative.

 

Chapter 23 – insiders’ stories  

As the public is always “in” the market to some extent, it follows that there are losses by the public all the time. The speculator’s deadly enemies are: ignorance, greed, fear and hope.

…. deliberate misinformation as distinguished from straight tips.

The average outsider trades either on tips or on rumors ….. if the tip goes wrong, what can you do?

When a stock keeps going down you can bet there is something wrong with it, either the market for it or with the company. If the decline is unjustified …… the only time a bear can make big money selling (shorting) a stock is that stock is too high.

In a bull market particularly in booms the public at first makes money which it later loses simply by overstaying the bull market.