How to Trade in Stocks

By: Jesse Livermore

As one of the greatest traders to ever live, Jesse Livermore is an inspiration for all modern traders. In this classic book, Livermore discusses important topics such as: emotional control, market timing, risk management, and interpreting market price reactions. This version of the book includes commentary by Livermore-expert Richard Smitten to help the reader apply Jesse Livermore's trading strategies to today's market.

Strict Adherence to Trading System

Perhaps the most notable facet of Livermore's legendary career was his strict adherence to his trading system. Jesse Livermore traded stocks at a time (early 1900's) when trends could only be identified by manually recording day-t0-day stock prices in a general ledger journal. Despite trading the most volatile stocks using aggressive position sizing, Livermore preached essential risk management strategies like identifying the exit point (the early equivalent of a "stop loss" order) should the market move against you significantly.

jesse livermore trading quote
True to his strategy, Livermore traded both sides of the market.

Strategy Discussed in How to Trade in Stocks

Aside from Livermore's strict adherence to a rules-based trading system, his strategy involved momentum trading on breakouts from price ranges. This strategy is still popular among traders to this day. Jesse Livermore believed that successful speculators needed to wait until the market had confirmed (through price) their trading idea. The general concept is to get in as early as possible on a trade after the market confirmed your judgement. For this reason, Livermore's trading style avoided stocks that were trading within stable price ranges.

Final Thoughts

This book, written by Livermore using a pseudonym, offers compelling insight into the approach used by one of the greatest traders to ever live. How to Trade in Stocks is often quoted by the most prominent traders of modern times. There is significant evidence of momentum in stock prices, and so How to Trade in Stocks is very much relevant for current traders.

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Eric Bruin

Eric Bruin

Founder. Kelley School of Business '17. Write about stocks and business news. Contact for business inquiries or to write articles for The Stock Trader Blog.

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