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How to Trade in Stocks by Jesse Livermore: A Summary and Review

How to Trade in Stocks by Jesse Livermore – Jesse Livermore was one of the most legendary and influential traders of all time. He made and lost millions of dollars several times over his career, which spanned from the late 1800s to the early 1940s. He was known for his ability to read the market and anticipate its movements, as well as his daring and disciplined trading style.

In 1940, Livermore published his only book, How to Trade in Stocks, which was based on his personal experiences and trading methods. The book offers a rare glimpse into the mind and strategies of a master trader, as well as valuable lessons and insights for anyone who wants to learn how to trade successfully.

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The book is divided into two parts. The first part is an autobiographical account of Livermore’s life and career, from his humble beginnings as a quotation board boy in a brokerage office to his rise and fall as a Wall Street legend. The second part is a detailed explanation of Livermore’s trading system, which he called the “Livermore Market Key”.

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The Livermore Market Key is a set of principles and rules that Livermore developed and refined over his years of trading. It covers topics such as:

  • Reading market and stock behaviors
  • Analyzing leading sectors
  • Market Timing
  • Money management
  • Emotional control
  • Trading psychology

The book also contains 16 color charts that illustrate Livermore’s trading examples and techniques. These charts show how Livermore applied his market key to various market situations and scenarios, such as bull markets, bear markets, consolidations, breakouts, trends, reversals, and more.

Some of the main points and takeaways from the book are:

  • The market is never wrong. The market reflects the collective opinions and actions of all its participants. Therefore, the trader’s job is not to argue with the market or impose their own views on it, but to follow its direction and trend.
  • The market moves in cycles. The market alternates between periods of activity and inactivity, expansion and contraction, optimism and pessimism. The trader must learn to recognize these cycles and adapt their trading accordingly.
  • The market has three movements. The market has a primary movement, which is the main trend that lasts for months or years; a secondary movement, which is a correction or reaction that lasts for weeks or months; and a minor movement, which is a daily fluctuation that lasts for hours or days. The trader must learn to identify these movements and trade with the primary movement, not against it.
  • The market is influenced by human nature. The market is driven by the emotions of fear and greed, hope and despair, confidence, and doubt. These emotions cause the market to overreact and underreact, creating opportunities for traders who can control their own emotions and exploit those of others.
  • The market is governed by natural laws. The market follows certain patterns and principles that can be observed and measured. These include support and resistance levels, trend lines, channels, formations, volume, momentum, relative strength, and more. The trader must learn to use these tools to analyze the market and make informed decisions.
  • The market rewards patience and discipline. The market does not reward traders who trade too often or too impulsively. The trader must wait for the right opportunity to enter or exit a trade, based on their analysis and rules. The trader must also stick to their plan and avoid being swayed by emotions or opinions.
  • The market punishes mistakes and ignorance. The market does not forgive traders who trade without knowledge or preparation. Traders must learn from their mistakes and avoid repeating them. The trader must also keep up with the changing market conditions and trends.

In conclusion, How to Trade in Stocks by Jesse Livermore is a classic book that every trader should read and study. It contains timeless wisdom and practical advice that can help traders improve their skills and performance. It also reveals the secrets of one of the greatest traders who ever lived, who left behind a legacy that still inspires generations of traders today.

Frequently Asked Questions (F&Qs)

What is the book about?

The book is a classic guide to stock trading, written by Jesse Livermore, one of the most successful traders of all time. The book covers a wide range of topics, including market analysis, technical analysis, and money management.

Who is the target audience for the book?

The book is intended for both beginner and experienced traders. Livermore’s insights are still relevant today, and the book can be a valuable resource for anyone who wants to learn how to trade stocks successfully.

What are some of the key takeaways from the book?

Some of the key takeaways from the book include:

  • The importance of technical analysis.
  • The need to follow the trend.
  • The importance of money management.
  • The need to be disciplined and patient.

What are some of the criticisms of the book?

Some people have criticized the book for being outdated. However, Livermore’s insights are still relevant today, and the book can be a valuable resource for anyone who wants to learn how to trade stocks successfully.

Where can I buy the book?

The book is available in print and electronic format. You can buy it from most major retailers, including Amazon, Barnes & Noble, and Bookshop.org.

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