In this episode of Truth About FX, Walter talks about Jesse Livermore, his book, life, and history as one of the most revered forex traders. What made him the trader that he was? Walter also talks about risk management and how Jesse Livermore’s life could set as an example when it comes to psychology, strategy, and dealing with losses.
Download (Duration: 04:24 / 5:04 MB)
In This Episode:
00:27 – right and wrong
01:36 – warning
03:06 – sit and wait
04:01 – wild sums of money
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. What you think was right and wrong about Jesse Livermore’s trading Psychology?
Walter: Great question, Hugh. There’s a couple of things that stand out. First of all, a lot of people probably don’t know or maybe you do know that Jesse Livermore took his own life.
I know a lot of people talked about how his book was so great and all that or the thinly veiled biography “Reminiscences of a Stock Operator”. We can put the link for that in the shownotes for this episode so that you can check it out if you haven’t read the book. It kind of relates to forex traders today even because back in the day, Jesse was trading with these crooked brokers that they called “bucket shops”.
Forex has a dirty name too because of these crooked brokers or whatever and people selling you automated robots. It has a dirty name. You can relate to Jesse’s world where people were going in trading with these so-called bucket shops.
But, here is the thing about Jesse, two things that stand out for me. Number one is he took his own life so if there’s some sort of warning to traders out there that risk management is really the name of the game and being on top of that, look no further than Jesse Livermore.
He is a well-known, well-established, and really sort of revered trader. He took his own life and that tells you right there all you need to know so that’s number one. Keep that in mind.
Number two is the book is great. It’s an excellent book but for me what really stood out was his quote where he says something along the lines of — again, I’ll link this up in the shownotes so you guys can see it. But, Jesse Livermore says something along the lines of this, he say, “Look, any fool can be right to buy at the right time or sell at the right time in the market. Any fool can do that, anyone.”
It happens everyday that someone gets into a trade at the perfect time. He says, “It takes real guts and patience to wait it out and that was where my real money was made”. You got that? I made my real money by waiting.
And so, that’s something that I think a lot of people should probably keep in mind. For example, I’m just thinking about a trade that I took while I was sleeping last night. A trade that triggered for me which was a really tight stop loss, that 25 pip stop and trades up 75 pips right now.
So, that’s a 3 to 1, right? But I’m not going to make a lot of money on this trade if I just get out as soon as I got a little bit of profit, right? It’s just not going to happen. What’s going to happen is I’ll make money if I can sit and wait. That’s really what is it all about.
That is something that I’m trying. I keep that little quote, I used to, but I don’t have it anymore. I used to keep that little quote next to my computer where it says it was my sitting that made all the money for me.
That is something that I think a lot of traders can take home. Keep in mind, he will now only say that. Most traders are actually have, they give their winning trades too much room to move and they should get out quickly in terms of a trailing exit.
Most traders have too much wiggle room with their trailing exit and their initial stops are too tight, generally speaking. But, overall I just want to make those two points: that yes, you make money by waiting in this game; and two, you have to be really, really careful guys with your risk management.
If you can’t get that right, probably it’s not for you and obviously even Jesse have problems with that because in the end, that’s what undid him. If you’ll look at his career, it was up and down. He’ll make wild sums of money then he’ll lost it all. That all comes down to risk management. That’s what I would say about Jesse Livermore.
Hugh: Okay, cool. Thanks for that, Walter.