February 16, 2011

Livermore's Trading Lessons

Cut your losses quickly.
As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

Let profits ride until price action dictates otherwise.
“It never was my thinking that made the big money for me. It always was my sitting.”

One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position.

Buy all-time new highs.
The psychological merits of buying all-time or 52-week highs are immense and shouldn’t be discounted as a part of your overall strategy.