1. The next four years (1911-14) are a sideways market and for L “there was not a penny to be made”
2. “Really I had not been filled with such pride as called for a fall.” Hopefully the modern reader disagrees. L commits and fails to realize he is committing egregious sins of money management.
3. L tries making money in other broker’s offices but while he had no trouble getting credit he fails.
4. “It served me right, because I was trying to force the market into giving me what it didn't have to give—to wit, opportunities for making money.”
5. When he finally stops trading on credit he’s in debt $1M!
6. He survives by managing other accounts.
7. He begins to feel discouragement “for the first time in my life.”
8. “To make money I needed merely to trade successfully. I had so traded before and I must do so once more. More than once in the past I had run up a shoe string into hundreds of thousands. Sooner or later the market would offer me an opportunity.”
9. L realizes his problem is worrying over the money he owes. He is also ‘bedevilled’ by a couple of aggressive creditors.
10. L decides he must go through bankruptcy but realizes how unpleasant it will be.
11. “I hated to do it. I hated to put myself in a position to be misunderstood or misjudged. I myself never cared much for money. I never thought enough of it to consider it worth while lying for. But I knew that everybody didn't feel that way.”
12. All his big creditors forgive him. This wasn’t just good sportsmanship- it was an intelligent business decision. His minor creditors continue to hound him though.
13. The newspapers, of course, have a field day. L is ashamed to go out, but eventually it all wears off and “I cannot tell you how intense was my feeling of relief to know that I wasn't going to be harried any more by people who didn't understand how a man must give his entire mind to his business—if he wishes to succeed in stock speculation.”
14. The exchange was closed for a few months in 1914 (WW1?) and because of the depressed conditions there is no one to go to for a loan.
15. Finally L goes back to Willamson (!) who loans him 500 shares of whatever looks good. This actually annoys L who’s “a little sore to think that Williamson & Brown didn't give [him] a decent stake.”
16. As with many traders starting out, L has a unique problem. He hasn’t much leeway and cannot afford a single mistake. He must build up his stake on his first play. However he had to make sufficient capital to be able to use good judgment. Without margins he cannot make cold-blooded dispassionate calls that come from the ability to afford minor losses necessary in testing the market before putting down big bets.
17. “I think now that I found myself then at the most critical period of my career as a speculator. If I failed this time there was no telling where or when, if ever, I might get another stake for another try. It was very clear that I simply must wait for the exact psychological moment.”
18. L avoids Williamson’s office, in case it should cause him to feel pressured to act. “A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses. There is no need to feel anger over being human. I have come to feel that it is as necessary to know how to read myself as to know how to read the tape. I have studied and reckoned on my own reactions to given impulses or to the inevitable temptations of an active market, quite in the same mood and spirit as I have considered crop conditions or analysed reports of earnings.”
19. L is bullish on Bethlehem steel but resolves to wait for it to ‘cross par’ by which he means cross an even number level like 100, 200, 300. As mentioned in the Anaconda story he believed that when a stock crosses par it’s likely to follow through.
20. He is practically tortured by his need to sit tight as he considers how much money he isn’t earning as the stock moves to his entry level. This takes six weeks.
21. The price reaches 98 and L can’t resist buying before it hits the level. However he gets what he expected and the stock reaches 114 where he buys 500 more, the next day it quickly shoots up to 145, earning his stake.
22. “I earned it. Those six weeks of waiting for the right moment were the most strenuous and wearing six weeks I ever put in. I now had enough capital to trade in fair-sized lots. I never would have got anywhere just on five hundred shares of stock.”
23. With no creditors, and no margin issues L starts winning...right before the Lusitania.
24. “Every once in a while a man gets a crack like that in the solar plexus, probably that he may be reminded of the sad fact that no human being can be so uniformly right on the market as to be beyond the reach of unprofitable accidents.”
25. As a result of the Lusitania incident and “two other reverses” he had only $140,000 at the end of 1915.
26. In 1916 he was “very lucky” being “rampantly bullish” in a wild bull market. The war was making the USA prosperous as allies bought much needed supplies and prices rose with inflation.
27. HH Rogers of Standard Oil : “there were times when a man could no more help making money than he could help getting wet if he went out in a rainstorm without an umbrella.”
28. It was a clearly defined bull market as no manipulation was needed to get it started.
29. Despite the prosperity, which was broad-based, not everyone managed to keep their profits, in a case of history repeating itself.
30. “Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.”
31. As the market rises, L watches for warning signals. “That a bull market has added to my bank account or a bear market has been particularly generous I do not consider sufficient reason for sticking to the bull or the bear side after I receive the get-out warning. A man does not swear eternal allegiance to either the bull or the bear side. His concern lies with being right.”
32. “A market does not culminate in one grand blaze of glory. Neither does it end with a sudden reversal of form. A market can and does often cease to be a bull market long before prices generally begin to break. My long expected warning came to me when I noticed that, one after another, those stocks which had been the leaders of the market reacted several points from the top and—for the first time in many months—did not come back. Their race evidently was run, and that clearly necessitated a change in my trading tactics.”
33. L switches to both long and short, shorting the stocks that had stopped leading and staying long the leaders. He shorts to the tune of 5,000 shares in each.

If you’re groaning or facepalming at this point of the story, or have done so already I don’t blame you. However looking at a chart of the period it looks like he’s going to emerge the hero.

1. The shorts languish and the longs keep rising, but when they stop rising, he exits and goes short on those too. However he knew the time for being a ‘rampant bear’ hadn’t arrived.
2. At 60,000 shorts he says it wasn’t a very heavy line but the market wasn’t yet heavily bearish.
3. Then the market breaks and when he had a profit of 4 points in every short trade he knew he was right so he doubled his short positions. Once he has his position he doesn’t feel the need to push further. He watches the market for seven weeks.
4. News of Wilson suing for peace made stocks break down badly, since the war was a bull item and this is the opportunity L uses to cover his shorts.
5. “It was the only play possible. When something happens on which you did not count when you made your plans it behooves you to utilise the opportunity that a kindly fate offers you. For one thing, on a bad break like that you have a big market, one that you can turn around in, and that is the time to turn your paper profits into real money. Even in a bear market a man cannot always cover one hundred and twenty thousand shares of stock without putting up the price on himself. He must wait for the market that will allow him to buy that much at no damage to his profit as it stands him on paper.”
6. Accidents like this usually run along L’s “line of least resistance”
7. “Never try to sell at the top. It isn't wise. Sell after a reaction if there is no rally.”
8. L clears about $3M dollars in 1916 by being bullish as long as the bull market lasted and then bearish when the bear market started.
9. Again he goes fishing for a vacation, this time in Palm Beach. In the Adirondacks he has a direct wire from the broker’s office to his house.
10. L reflects on Wilson’s peace efforts and believes he will succeed. He suspects this will cause stocks and wheat to fall, but cotton to rise.
11. He starts at 15,000 bales using his usual method.
12. The next day the headline is ‘unrestricted warfare’, not peace.
13. At Gridley’s (a restaurant?) someone offered to sell any amount of steel at 5 points below that day’s close. He got no takers as everyone knew the market would gap down.
14. Some stocks opened 8 points below the previous close and L covers his shorts during the uproar.
15. “In a bear market it is always wise to cover if complete demoralisation suddenly develops. That is the only way, if you swing a good-sized line, of turning a big paper profit into real money both quickly and without regrettable reductions. For instance, I was short fifty thousand shares of United States Steel alone. Of course I was short of other stocks, and when I saw I had the market to cover in, I did. Profits amounted to about one and a half million dollars. It was not a chance to disregard.”
16. His cotton trade is down $375,000 and while he covered his profitable shorts, he wasn’t sure if he should cover his long trade as he wasn’t sure if he was wrong. L emphasizes that he always takes the loss the moment he’s convinced he’s wrong.
17. However then he recalls he was there to have a vacation, not be perplexed by stock operations, and after his enormous profits in wheat and stocks, he takes the loss. Wise, it seems to me.
18. L notes that his ‘line of least resistance theory’ bears out again, because if the note had been peace instead of war, he would have been right in all three of his lines, but even with diametrically opposing news he was still right in ⅔.
19. L returns to New York in 1917 and pays off all his debts which amount to over $1M. A great pleasure. He could have paid them off earlier but didn’t as he needed the capital. Of course many of them never expected to be repaid. He makes the one creditor who made his life most miserable, the smallest loan of the bunch, wait last to be repaid.
20. “After I paid off my debts in full I put a pretty fair amount into annuities. I made up my mind I wasn't going to be strapped and uncomfortable and minus a stake ever again. Of course, after I married I put some money in trust for my wife. And after the boy came I put some in trust for him.”

Events in his late life make this statement questionable.

1. I knew that a man will spend anything he can lay his hands on. This one anyway!
2. But I have fixed it up so that no matter what I want or what my wife wants, that trust holds.”

L may have learned his lesson from his first marriage which ended shortly after he tried to pawn the jewelry she’d received from him, to recover from trading losses.

1. “There are certain chances that the most prudent man is justified in taking—chances that he must take if he wishes to be more than a mercantile mollusk. Normal business hazards are no worse than the risks a man runs when he goes out of his house into the street or sets out on a railroad journey. When I lose money by reason of some development which nobody could foresee I think no more vindictively of it than I do of an inconveniently timed storm.”
2. “I have never thought it good business to play any game in any place where it was necessary to keep an eye on the dealer because he was likely to cheat if unwatched. But against the whining welsher the decent man is powerless. Fair play is fair play.”
3. L disagrees with fiction writers that trading is “strife and contest”. L does not fight individuals or cliques. He merely differs in opinion. He sees business battles as tests of business vision.
4. “I try to stick to facts and facts only, and govern my actions accordingly. That is Bernard M. Baruch's recipe for success in wealth-winning. Sometimes I do not see the facts—all the facts—clearly enough or early enough; or else I do not reason logically. Whenever any of these things happen I lose. I am wrong. And it always costs me money to be wrong.”
5. The coffee story:
   1. L constructs a bull case for coffee, considering that with shipping under fire by the Germans, coffee imports will dwindle and the price must rise along with other commodities during wartime. L considers this a conservative investment, “a banker’s act rather than a gambler’s play.”
   2. He started buying in 1917 but the price goes nowhere for nine months and his contracts expired at “a whopping great loss.”
   3. He begins buying again immediately, three times as much as before using deferred options with as long an expiry as he could get. This time the market rose.
   4. “I trade in accordance to my means and always leave myself an ample margin of safety. In this instance I was conservative enough. The reason I bought options so freely was because I couldn't see how I could lose.”
   5. How he loses is that coffee producers, unable to find ships to deliver their product, appeal to the government price-fixing committee to label this an attempt by profiteers to extort exorbitant prices for the average American. L is forced to close his shorts and lose millions in potential profits. L makes the case that most commodities were already selling well above their wartime price and coffee was actually the exception when started buying.
   6. As it is the artificially lower price for coffee made it more difficult and less desirable to pay high ocean freights and ensure importation, so ironically the price of coffee rose anyway. Only the roasters benefited in the end.

6. “Post-mortems in speculation are a waste of time. They get you nowhere”
7. “You cannot be dead sure of anything in a speculative operation. It was the experience I have just told you that made me add the unexpectable to the unexpected in my list of hazards.” The original black swan!
8. L gets blamed unfairly for several market panics and is accused of ‘unpatriotic selling’.
9. “As I have said a thousand times, no manipulation can put stocks down and keep them down. There is nothing mysterious about this. The reason is plain to everybody who will take the trouble to think about it half a minute. Suppose an operator raided a stock—that is, put the price down to a level below its real value—what would inevitably happen? Why, the raider would at once be up against the best kind of inside buying. The people who know what a stock is worth will always buy it when it is selling at bargain prices.”
10. “Selling a stock down to a price much below what it is worth is mighty dangerous business. It is well to bear in mind that a raided stock that fails to rally is not getting much inside buying and where there is a raid— that is, unjustified short selling—there is usually apt to be inside buying; and when there is that, the price does not stay down.”
11. “Ninety-nine cases out of a hundred, so-called raids are really legitimate declines”
12. “The theory that most of the sudden declines or particular sharp breaks are the results of some plunger's operations probably was invented as an easy way of supplying reasons to those speculators who, being nothing but blind gamblers, will believe anything that is told them rather than do a little thinking.”
13. L explains that such excuses are inverted tips - explanations that don’t explain but merely prevent you from carrying out the logical action based on what price is doing. It’s natural to sell stock that is breaking badly, even if the reason is unknown to you, there is a reason, therefore, get out. He further cautions it’s unwise to get out if the break is the result of a raid by an operator, because the moment he stops, the price must rebound. “

But how can ordinary traders possibly tell the difference?

1. For some reason people (some people) crave tips and relish in giving them.
   1. The reasons involve greed and vanity
   2. I would argue nearly 50% or more of all internet forum/Twitter activity related to finance falls under this category - greedy people looking for easy answers, and vain charlatans looking for attention
   3. “There is a type of promoter or manipulator that believes in tips first, last and all the time. A good flow of tips is considered by him as a sort of sublimated publicity work, the best merchandising dope in the world, for, since tip-seekers and tip-takers are invariably tip-passers, tip-broadcasting becomes a sort of endless-chain advertising.”

   
   
   
   

2. The Borneo Tin story
   1. At the height of the boom
   2. The stock was offered without the benefit of an underwriting because it was hoped to make profits fast while the bull market lasted.
   3. The stock promoters priced it too high, out of inexperience, but during the mania for stocks it didn’t matter
   4. L had not joined the pool when approached, because he is a lone hand who liked to “trade on my own information and follow my own methods”
   5. L buys 10,000 shares in the first hour on IPO knowing that the pool had resources, and that the public was hot for stocks.
   6. The promoters realize the stock will sell out and decide that L’s stake in it is too high so they attempt to shake him out but he doesn’t explain how they do this
   7. L sits tight and eventually they ‘put the price up’ as they ‘don’t want the market to get away from them’. When it reaches 120 he closes his position.
   8. The stock is ‘marked up’ to 150, but L knows the bull market is fading, and the only remaining buyers are the suckers who “love to buy after a good reaction, on the fallacy that a stock that has once sold at 150 must be cheap at 130 and a great bargain at 120.”
   9. At a dinner party in Palm Beach, L’s wife is urged by the president of the Borneo Tin company, also the manager of the promoter’s pool, to buy stock as it will ‘surely advance’ based on inside info. We are told that he had ‘manoeuvred’ to be sitting by her at dinner to deliver this message.
   10. She uses some money given to her by L and buys Borneo Tin in secret. 100 shares at 108. It goes up 3 points.
   11. At the same time L is bearish and sold 10,000 shares which he suspects kept the price down. The next day he sells 2,000 at the open, 2,000 at the close and it drops to 102.
   12. After some patriarchal nonsense common to almost every era the upshot is that the Borneo Tin man’s plot doesn’t work at all, in fact it has quite the reverse effect because now L is intent on selling the whole market short.

   
   
   
   

3. L compares tip-takers to drunkards, some can’t resist the craving
4. “If I told the average man, "Sell yourself five thousand Steel!" he would do it on the spot. But if I tell him I am quite bearish on the entire market and give him my reasons in detail, he finds trouble in listening and after I'm done talking he will glare at me for wasting his time expressing my views on general conditions instead of giving him a direct and specific tip, like a real philanthropist of the type that is so abundant in Wall Street— the sort who loves to put millions into the pockets of friends, acquaintances and utter strangers alike.” And doesn’t this neatly express Clemmo’s Conjecture and the reason this thread is sparsely populated by visitors even though it dispenses usable (at least potentially useful) knowledge, where the EURUSD interactive trading thread has thousands of daily visitors? The interactive trading threads are dominated by the masses who want to show how clever they are or to confirm their current market bias, or to correct a flawed rationale for their trading.
   

Of course some proportion of them are simply lonely traders (and trading is lonesome work for the most part) who want to chitchat where the action is, and I don’t begrudge that of anyone.

1. “The belief in miracles that all men cherish is born of immoderate indulgence in hope. There are people who go on hope sprees periodically and we all know the chronic hope drunkard that is held up before us as an exemplary optimist. Tip-takers are all they really are.”
2. Some people see L as selfish or cold-blooded since he never gives tips.
3. “The farther away the source, the purer the tip.”
4. The story of Old Westlake and John W. Gates who asked him for a tip. Gates makes a fortune by reversing (coppering) it.
5. The story of W.A.Rogers’ hat - whose friend mistakenly takes his hat and is debating whether to buy stocks or sell, dependent on whether war will be declared in Spain. He takes off his hat, sees the initials WAR on the inside and buys stocks, makes a killing. The cartoonist, Rogers, says, “I never got back that hat!”
6. The story of JT Hood and Bert Walker - they get a series of bad tips from a company director and after losing a lot of money Hood goes to the telegraph office to give him a piece of his mind, but Walker stops him. “"We'll never get another tip from him if you send that telegram!"And this I think, is an excellent analogy to technical analysts who keep falling for bad signals from periodic indicators.
7. “Old Baron Rothschild's recipe for wealth winning applies with greater force than ever to speculation. Somebody asked him if making money in the Bourse was not a very difficult matter, and he replied that, on the contrary, he thought it was very easy. "That is because you are so rich," objected the interviewer. "Not at all. I have found an easy way and I stick to it. I simply cannot help making money. I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon."
8. The Pennsylvania Dutchman story
   1. He would go into the offices of the company directors to ask them questions directly.
   2. One director assured him he was economizing by writing figures on expensive sheets of monogrammed linen letterhead paper, and then throwing them away.
   3. The Dutchman sold that stock.
   4. The other director would take the left-over envelopes they had opened from the daily mail, rip them inside out and use the other sides of the paper as his scratch-pads. Such an economizer in action must be a good manager, so the Dutchman bought his stock (D.L&W) and still owned it, years later after its dividend outpaced his original investment.

   
   
   
   

1. “Ticker sense” - mysterious hunches that are possibly based on observing several warning signs, though not always consciously
2. “Usually, I confess, the warning turns out to be not only sound but timed to the minute.
3. About watching for the signal that a bull market has ended
   1. “I did not look for the end on any fixed date. That was something quite beyond my power to determine. But I needn't tell you that I was on the watch for the tip-off. I always am, anyhow. It has become a matter of business habit with me.”
   2. Experience has taught me that a man can always find an opportunity to make his profits real and that this opportunity usually comes at the end of the move. That isn't tape-reading or a hunch.”

   
   

4. On the training of a stock trader:
   1. Similar to medical education as there are various unrelated subjects that need to be mastered just as a doctor must master anatomy, physiology, etc.
   2. Theory is learned and then he devotes his life to practice
   3. He observes and classifies phenomena
   4. He learns to diagnose
   5. If his observations are correct his diagnosis is more likely to be correct
   6. Human fallibility and the unforeseen will prevent him from scoring 100%
   7. As he gains experience he learns to do the right thing and do it instantly so that it seems like instinct
   8. “You can transmit knowledge—that is, your particular collection of card indexed facts—but not your experience. A man may know what to do and lose money—if he doesn't do it quickly enough.”
   9. “Observation, experience, memory and mathematics—these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed.”
   10. Traders cannot bet on whims and fancies no matter what their personal opinions might be or belief that the unexpected happens frequently.
   11. “He must bet always on probabilities—that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.”
   12. Math and observation are not enough - you need memory and experience to go with them
   13. “The wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years at the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude and that enables him to beat the game —at times!”
   14. Wall St. makes its money by dealing with facts and figures.

   
   

5. The winter wheat / shopmen’s strike thought experiment.
   1. If the railroad workers strike and there’s a delay bringing wheat to market then when it does get moving another crop will be ready to bring in creating a glut
   2. Prices must weaken as a result of other traders using the same logic
   3. As Pat Hearne said, “You can’t tell till you bet.”
   4. Once you have a trend bias there is no need to waste time.
   5. “Experience has taught me that the way a market behaves is an excellent guide for an operator to follow. It is like taking a patient's temperature and pulse or noting the colour of the eyeballs and the coating of the tongue.”
   6. As is his way, L starts by selling a quantity of wheat and seeing how the market reacts. Price goes down a bit, but it’s not conclusive so he sells more.
   7. L notices that the sales go through in ‘driblets’ small lots of 10,000 to 15,000 where he normally would expect it to go through in 3 transactions. Also the price goes down 1.25 cents. These are all bearish signs so as is his way, he sells more, a lot more. 2,000,000 bushels.
   8. Again, price declines so again he sells 2M, and the market drops
   9. No tips, hunches just an habitual attitude to commodities and experience

   
   

6. L describes sector theory - stocks of a group rise and fall together.
   1. Advice to trade in stocks that have lagged behind others in a group
   2. “Trade conditions and prospects should work alike with all stocks of a group and the prosperity should be shared by all. On the theory, corroborated by experience times without number, that every dog has his day in the market, the public will buy A. B. Steel because it has not advanced while C. D. Steel and X. Y. Steel have gone up.”
   3. “Never buy a stock even in a bull market, if it doesn't act as it ought to act in that kind of market.”
   4. L calls this correlation the ‘manifest group-tendency’

   
   

7. The Chester automobiles story
   1. Autos as a sector were rising as more people were buying cars
   2. The market was also rising
   3. One stock, Chester was not advancing with its sector
   4. It was clear the insiders of the stock weren’t interested in buying it as that’s all it would take to get it moving in a bullish market
   5. Either they were waiting for a drop to accumulate (not borne out by the volume) or they didn’t want it
   6. Their lack of faith is enough to convince L to trade it short
   7. Later it emerges that insiders were selling their own stock, as they knew the condition of the company.
   8. L doesn’t look for the reasons, or the breaks, only the warnings - the tape tips him off

   
   

8. The Guiana Gold story
   1. Similar to Chester, the stock seemed like a cinch as the market was hot, and a syndicate formed of a half-dozen capitalists and a banking house begin to promote the stock
   2. They at first thought to entrust the market manipulation to “a professional” for a fee but at the last minute they decide to do it themselves and avoid the fee
   3. The stock is strong at first rising from 41 to 47 but then it begins to sag
   4. The Street hears rumours and L sells Guiana, the price goes down so he sells a bit more
   5. Outsiders bought as it looked cheap, and the dividend was still being paid
   6. Then news arrives that the assays hit barren rock, not gold, the reason why insiders were selling
   7. “I didn't have to know why the insiders did not think enough of their own stock to buy it on the decline. It was enough that their market plans plainly did not include further manipulation for the rise. That made it a cinch to sell the stock short. The public had bought almost a half million shares and the only change in ownership possible was from one set of ignorant outsiders who would sell in the hope of stopping losses to another set of ignorant outsiders who might buy in the hope of making money.”

   
   

9. The fourth cotton story
   1. L had a profitable stock deal in progress and was short 50,000 bales of cotton.
   2. The stock deal does so well that he neglects his short cotton trade and of course it rallies
   3. After the stock deal closes L is able to concentrate on the cotton deal and realizes, after he is $1M down that he is wrong. When he is wrong he exits immediately.
   4. Shortly afterwards, of course, the rallies stop and cotton declines so L immediately goes short again.
   5. At dinner he jumps up and sells more, convinced the decline is for real this time.
   6. He sells still more and by the time he gets to Philadelphia en-route to New York he exits his shorts, having nearly recovered his cotton loss.
   7. “Bore the cotton market no grudge for taking a million dollars out of me and I did not hate myself for making a mistake of that calibre any more than I felt proud for covering in Philadelphia and making up my loss. My trading mind concerns itself with trading problems and I think I am justified in asserting that I made up my first loss because I had the experience and the memory.”

   
   

1. The Tropical Trading (TT) story
   1. History repeats in the market all the time
   2. Recall the Stratton corn short story
   3. L uses a similar tactic in this stock
   4. The insiders are accused of encouraging wild fluctuations rather than long-term investment
   5. “The behaviour of Tropical Trading was the outstanding feature of the market, according to the newspapers I got that morning. It served to crystallise my general bearishness because I thought it particularly asinine for the insiders to run up the price of TT in the face of the heaviness of the general list. There are times when the milking process must be suspended. What is abnormal is seldom a desirable factor in a trader's calculations and it looked to me as if the marking up of that stock were a capital blunder. Nobody can make blunders of that magnitude with impunity; not in the stock market.”
   6. As is his method L sells and checks the reaction, selling more each time the market reacts favourably and price drops from 153 to 133.
   7. “I had been warned that the TT insiders knew the exact whereabouts of every stock certificate in the Street and the precise dimensions and identity of the short interest as well as other facts of tactical importance. They were able men and shrewd traders. Altogether it was a dangerous combination to go up against. But facts are facts and the strongest of all allies are conditions.”
   8. The public of course see things exactly wrong - the stock has declined, but the dividend, officers and business are the same, so it must be a bargain!
   9. The public buying combined with ‘propitious squeezing’ runs the price back up to 150, however L holds firm.
   10. “Fundamental conditions were fighting for me. It was not difficult to be both fearless and patient. A speculator must have faith in himself and in his judgment.”
   11. Dickson G. Watts - “Speculation as a Fine Art”, -”courage in a speculator is merely confidence to act on the decision of his mind.”
   12. It is the character of the advance—or of the decline—that determines for me the correctness or the fallacy of my market position. I can only rise by knowledge. If I fall it must be by my own blunders.”
   13. “There was nothing in the character of the rally from 133 to 150 to frighten me into covering and presently the stock, as was to be expected, started down again.” Obviously it would be good to have more specifics here. What does the character of a frightening rise look like?
   14. The stock declines to 140 before once again, insider buying and bullish rumours cause it to advance, so L, not wishing to be short any more of TT, “I did not propose to put my head into the noose so obligingly held open for me—the second rally was really an urgent invitation” uses the Stratton corn short strategy, which is to sell a similar, possibly competing or allied interest, in this case Equatorial Commercial Corporation. This being a much less active stock, his short of 10,000 shares causes it to drop.
   15. “When the traders—and the customers of the commission houses who had listened to the uncontradicted bull dope on TT—saw that the rise in Tropical synchronised with heavy selling and a sharp break in Equatorial, they naturally concluded that the strength of TT was merely a smoke-screen—a manipulated advance obviously designed to facilitate inside liquidation in Equatorial Commercial, which was largest holder of TT stock.”
   16. A few rounds of this goes back and forth, but what’s important is that “it was the conviction that we were in a bear market that started me selling TT short” so L expects the overall market to assist him in his endeavour, and it does. The inside clique falters and “TT hit the toboggan slide”, and at the height of the demoralization, L takes in his shorts.
   17. A year later L does exactly the same thing but in a rising market, and this time he believes the support is genuine, so he covers and goes long according to the ‘line of least resistance’.
   18. The stock shoots up to 200 and the papers report he was squeezed short but in fact he was long and actually held on to TT a little too long and let some of his paper profits slip away. Why?
   19. “Because I thought the TT insiders would naturally do what I would have done had I been in their place. But that was something I had no business to think because my business is to trade—that is, to stick to the facts before me and not to what I think other people ought to do.”

   
   

1. L begins with some musings about manipulation and the difficulty of selling large blocks of stock without raising the price on yourself
2. The techniques used by traders in the past are no longer relevant because of rule changes. L says that for the modern manipulator it would be like studying archery to understand ballistics.
3. “On the other hand there is profit in studying the human factors—the ease with which human beings believe what it pleases them to believe; and how they allow themselves—indeed, urge themselves— to be influenced by their cupidity or by the dollar-cost of the average man's carelessness. Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was.”
4. "The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past." -Thomas F. Woodlock
5. New taxes have made ploys involving fictitious transactions, such as ‘wash sales’ and ‘matched orders’ much more expensive.
6. L discusses ‘corners’ (monopolizing the supply of a commodity) and how they didn’t always end up profitable for their engineers. L wonders why they were so popular 50 years in the past and why the ‘men of ability’ who concocted them allowed themselves to be stung so regularly. The reasons, of course, were vanity and revenge.
7. “He that sells what isn’t hisn [sic], must buy it back or go to prisn [sic] " -Cornelius Vanderbilt
   1. In other words, don’t play the game unless you can pay the price.

8. Most corners were aimed at fellow professionals since the general public usually avoids short-selling.
9. “I gather from the stories I have read that the professional traders sold the stock because it was too high. And the reason they thought it was too high was that it never before had sold so high; and that made it too high to buy; and if it was too high to buy it was just right to sell. That sounds pretty modern, doesn't it? They were thinking of the price, and the Commodore was thinking of the value!”
10. On Jay Gould: “he was head and shoulders above all other manipulators past and present. He must have been a financial wizard indeed to have done what he did; there can be no question of that. Even at this distance I can see that he had an amazing knack for adapting himself to new conditions, and that is valuable in a trader. He varied his methods of attack and defense without a pang because he was more concerned with the manipulation of properties than with stock speculation.”
11. “Vision without money means heartaches; with money, it means achievement; and that means power; and that means money; and that means achievement; and so on, over and over and over.”
12. L concludes with a story from ‘an old banker’ about another type of manipulation which isn’t pertinent but it occurs to me that while manipulation tactics change from generation to generation, the overall influence of manipulation does not. What is the dominant manipulation of our age?

1. This chapter starts with history of the speculator James R Keene whom L regards as one of the all-time greats.
2. “It is not difficult for a manipulator to be misunderstood by his associates. They don't see his needs as he himself does. I know this from my own experience.”
3. On Rockefeller and HH Rogers approaching Keene to market their excess stock of Amalgamated Copper: “They had practically unlimited resources and vast prestige as well as years of experience in the stock-market game. And yet they had to go to Keene. I mention this to show you that there are some tasks which it requires a specialist to perform.”
4. “In the stock market, as in warfare, it is well to keep in mind the difference between strategy and tactics.”
5. Keen apparently had the opposite emotional reaction to the market as most players. When it was going his way he was ‘irascible’. When he was losing, he was “in the best of humour, a polished man of the world, agreeable, epigrammatic, interesting.”
6. Never argued with the tape, fearless, but not reckless, willing to turn on a dime and reverse his position when he was wrong.
7. The rules changed after Keene’s day but L speculates he would have been as successful in any other era. “There are men whose gait is far quicker than the mob's. They are bound to lead—no matter how much the mob changes.
8. “A manipulator to-day, for instance, has not only to make a stock look strong but also to make it be strong. Manipulation therefore must be based on sound trading principles. That is what made Keene such a marvellous manipulator; he was a consummate trader to begin with.”
9. The story of Gould using Washington E. Connor, a retired speculator to buy controlling interest in Western Union
   1. Connor simply walked in and told the truth - that he was buying stock for Gould
   2. The traders laughed to think that they would fall for such a simple trick as to believe that Gould was really buying so he got the stock cheaply
   3. “Was that manipulation? I think I can only answer that by saying "No; and yes!"

   
   
   

10. it is well to remember a rule of manipulation, a rule that
11. Keene and his able predecessors well knew. It is this: Stocks are manipulated to the highest point possible and then sold to the public on the way down.”

The next part of the chapter details L’s steps for manipulating stocks as a service to a syndicate or a pool

1. Some associate realizes that their failure to sell their block of stock at the best price requires the services of a professional and so seeks them out as a man would seek a physician if they were ill
2. An interview is arranged and he calls at the office
3. L likely already knows the stock and the situation regarding it as that is his business
4. L asks for details to give him a clear understanding of what is required; he uses current market conditions to evaluate the likelihood of success of the operation
5. If L accepts the proposition he gives his terms there and then and if these are accepted he begins work “at once”
6. “I generally ask and receive calls on a block of stock. I insist upon graduated calls as the fairest to all concerned. The price of the call begins at a little below the prevailing market price and goes up; say, for example, that I get calls on one hundred thousand shares and the stock is quoted at 40. I begin with a call for some thousands of shares at 35, another at 37, another at 40, and at 45 and 50, and so on up to 75 or 80.”
7. If the stock goes up as a result of his manipulation efforts he calls the stock (exercises the options) and both client and manipulator make money on the deal - win-win.
8. L says that success is common because he only takes jobs that have a high probability but he also admits that “This year I was not so fortunate in one or two deals, and I did not make a profit. There are reasons, but that is another story, to be told later— perhaps.”
9. Steps in a bull movement (manipulation) in stock:
   1. Advertise that there is a bull market by making the stock ‘active and strong’ (?)
   2. The ticker is the best publicity, needs no literature or press, or company research, nor does it require a following
   3. Once the stock starts to move floor traders will help it along as they will buy or sell ‘at any level’
   4. They will also pass along tips and rumours
   5. Traders are looking for quick, not necessarily big profits
   6. L buys and sells it to create the appearance of activity, which attracts traders who then do the same
   7. The selling pressure is not apt to be strong where a man has as much speculatively held stock sewed up—in calls—as I insist on having. The buying, therefore, prevails over the selling, and the public follows the lead not so much of the manipulator as of the room traders. It comes in as a buyer. This highly desirable demand I fill—that is, I sell stock on balance. If the demand is what it ought to be it will absorb more than the amount of stock I was compelled to accumulate in the earlier stages of the manipulation; and when this happens I sell the stock short— that is, technically. In other words, I sell more stock than I actually hold. It is perfectly safe for me to do so since I am really selling against my calls. Of course, when the demand from the public slackens, the stock ceases to advance. Then I wait.”
   8. When the stock stops advancing, there will be a weak day and the entire market may be in a reaction, or some trader may notice there are no buy orders in the stock
   9. The stock will start to decline and L will buy to prop it up
   10. He is able to support it without increasing the amount he will have to sell later
   11. What he is really doing is covering stock he sold short at higher prices
   12. By showing traders and the public that there is demand for the stock on the way down it checks reckless short selling by the pros and liquidation by frightened holders - which is the selling you usually see when a stock gets weaker and weaker - caused by a lack of support (a vicious cycle)
   13. “As the market broadens I of course sell stock on the way up, but never enough to check the rise. This is in strict accordance with my stabilising plans. It is obvious that the more stock I sell on a reasonable and orderly advance the more I encourage the conservative speculators, who are more numerous than the reckless room traders; and in addition the more support I shall be able to give to the stock on the inevitable weak days.”
   14. By remaining short L is in a position to support the stock without danger to himself
   15. He starts his selling at a price that will show him a profit, but often sells without a profit simply to increase his “riskless buying power”
   16. His fee is contingent on his success, so he does not ask his clients to finance his operations
   17. “Of course what I have described is not my invariable practice. I neither have nor adhere to an inflexible system. I modify my terms and conditions according to circumstances.”

   
   
   

10. “A stock which it is desired to distribute should be manipulated to the highest possible point and then sold. I repeat this both because it is fundamental and because the public apparently believes that the selling is all done at the top. Sometimes a stock gets waterlogged, as it were; it doesn't go up. That is the time to sell.”
11. L will often go along with the trade using his own money if it is following his ‘line of least resistance’, “not because I am manipulating that particular stock at that particular moment but because I am a stock operator at all times.”
12. “When my buying does not put the stock up I stop buying and then proceed to sell it down; and that also is exactly what I would do with that same stock if I did not happen to be manipulating it. The principal marketing of the stock, as you know, is done on the way down. It is perfectly astonishing how much stock a man can get rid of on a decline.”
13. The manipulator’s problems are the same as the operators’
14. If a manipulated stock doesn’t act properly, it is time to quit, don’t argue with the tape, just quit while it is cheap to do so.

1. L admits that generalities are all he’s offering and they don’t sound impressive, so here’s a concrete example
2. The Imperial Steel story
   1. Fundamentals were good but not impressive
   2. The stock price didn’t go anywhere after the IPO, because it had little speculative appeal
   3. However the price didn’t go down as it was not well distributed and so too risky to short, as the seller would be at the mercy of the ‘loaded-up inside clique’.
   4. For investors it looked speculative and for speculators it looked like a dead-weight investment that would tie up capital
   5. One day the ‘foremost associate’ of Imperial Steel goes to see L
   6. Only 30 percent of the stock was held by the public, the insiders held the other 70; they want L to distribute their holdings and create a market
   7. He hires experts to make reports on the various departments, gathering facts
   8. The reports supported a bull manipulation based on discounted flows
   9. His fee is not cash but calls on the stock, from 70 to 100
   10. “That may seem like a big fee to some. But they should consider that the insiders were certain they themselves could not sell one hundred thousand shares, or even fifty thousand shares, at 70. There was no market for the stock.”
   11. Since L would earn no cash on the deal unless his clients made millions of their own the commission is fair.
   12. The deal agreed, L “proceeded to protect myself as thoroughly as I could.”
   13. The 70% of stock is deposited under a trust agreement. “I didn't propose to be used as a dumping ground for the big holders.”
   14. “Experienced speculators do not expect ever to engage in utterly riskless ventures.”
   15. L compares the risk of all the ‘untrusteed’ (30% of public) stock being ‘thrown on the market’ to the risk of all the policyholders of an insurance company dying at the same hour. In other words, not likely
   16. Having secured himself, his next objective was to make his call options valuable
   17. L consults his brokers to find out how much open interest is in the stock, “how much stock was likely to come on the market on an advance.”
   18. “As soon as I had a line on these points I quietly took all the stock that was for sale at 70 and higher.”
   19. L did not give out any bull tips, though he doesn’t think there’s an ethical problem with doing so. It’s just like advertising consumer goods.
   20. The tape did everything he needed, and newspapers would find reasons after the fact.
   21. “The best of all tipsters, the most persuasive of all salesmen, is the tape.”
   22. By absorbing all the stock available at 70 he relieves the selling pressure and the line of least resistance moves up.
   23. The traders begin buying as the price moves up, and L sells them the trusteed holdings.
   24. He only supplied the demand, not wishing too rapid an advance; he wants to sell most of his line at higher prices.
   25. Eventually the price begins to decline, caused by ‘disappointed bulls’ or speculators selling at the first sign of trouble, and of course L buys the stock back.
   26. As the price stabilizes the selling stops, and L ‘began all over again’.
   27. This process repeats several times, but always working higher
   28. “Sometimes, after you have taken all the stock that is for sale, it pays to rush up the price sharply, to have what might be called little bull flurries in the stock you are manipulating. It is excellent advertising, because it makes talk and also brings in both the professional traders and that portion of the speculating public that likes action.”
   29. “In buying on the way down and selling on the way up I was doing more than marking up the price: I was developing the marketability of Imperial Steel.”
   30. L doesn’t end up completing his full plan since he gets an offer from a banking syndicate to buy his options and he cashes out.

3. The Prentiss Petroleum story
   1. A similar manipulation but done at the behest of a friend when conditions were not favourable.
   2. L only takes the job at his friend’s strong insistence
   3. L is able to get the price up somewhat but then wishes to get out; Prentiss objects
   4. “"Prentiss, I can feel very plainly the pulse of the market. There is no followup in your stock. It is no trick to see just what the public's reaction is to my manipulation. Listen: When Pete Products is made as attractive to traders as possible and you give it all the support needed at all times and notwithstanding all that you find that the public leaves it alone you may be sure that there is something wrong, not with the stock but with the market. There is absolutely no use in trying to force matters. You are bound to lose if you do. A pool manager should be willing to buy his own stock when he has company. But when he is the only buyer in the market he'd be an ass to buy it. For every five thousand shares I buy the public ought to be willing or able to buy five thousand more.”
   5. “you don't sell in bulk on the advance. You can't. The big selling is done on the way down from the top.”
   6. L explains that the stock has risen as far as it can go so it must begin to be sold at this level, but Prentiss won’t listen to reason.
   7. Of course they end up liquidating at worse prices than they would have got if they had listened to L
   8. And of course Prentiss blamed L and was sore at him

4. “After a boom the public is positive that nothing is going up. It isn't that buyers become more discriminating, but that the blind buying is over. It is the state of mind that has changed. Prices don't even have to go down to make people pessimistic. It is enough if the market gets dull and stays dull for a time.”
5. “The average man, who never thinks of values but of prices, and is not governed in his actions by conditions but by fears, takes the easiest way— he stops thinking that there must be a limit to the advances. That is why those outsiders who are wise enough not to buy at the top make up for it by not taking profits. The big money in booms is always made first by the public—on paper. And it remains on paper.”

1. “Every business has its own needs. General wisdom is less valuable than specific savvy.”
2. “More than one promising deal has failed to pan out as expected because the members of the pool or clique failed to keep faith with one another. Dog has no foolish prejudices against eating dog in Wall Street.”
3. “Getting angry doesn't get a man anywhere. More than once it has been borne in on me that a speculator who loses his temper is a goner.”

Chapter 23
An unusually long chapter with several stories and long philosophical musings about how company directors behave in regards to their stock.

1. In this chapter L muses about how stock speculation is becoming more difficult as a result of regulation and increased numbers of stocks on the lists
2. “There are many thousands of people who buy and sell stocks speculatively but the number of those who speculate profitably is small. As the public always is "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.”
3. A warning against Wall st. rumours - intentional misinformation, not just tips
4. “In addition to trying to determine how to make money one must also try to keep from losing money. It is almost as important to know what not to do as to know what should be done. It is therefore well to remember that manipulation of some sort enters into practically all advances in individual stocks and that such advances are engineered by insiders with one object in view and one only and that is to sell at the best profit possible.”
5. “The overwhelming majority of the bullish articles printed on the authority of unnamed directors or insiders convey unreliable and misleading impressions to the public.”
6. The cycle of stock purchasing:
   1. Example of a company that has gone through a depression and the stock is inactive
   2. If the stock were cheap it would be bought, if it were expensive it would be sold; as it is it simply languishes sideways
   3. Nobody talks about it or does anything
   4. If something happens who finds out about it first, the insiders or the public? Obviously the insiders.
   5. If the event is an improvement in company fortunes, earnings increase and the company might be able to issue or resume a dividend - the stock value goes up
   6. If this continues does the management make this info public? No! They secretly buy up as many shares as they can while they are cheap.
   7. “The financial reporters, knowing that the insiders ought to know the reason for the rise, ask questions. The unanimously anonymous insiders unanimously declare that they have no news to give out. They do not know that there is any warrant for the rise. Sometimes they even state that they are not particularly concerned with the vagaries of the stock market or the actions of stock speculators.” I am reminded of Elon Musk telling reporters TSLA was overvalued (and so it dipped) just before the company reported record profits and the stock split. Was he doing it to buy some cheap stock back?
   8. Once the rise continues and the insiders have all the stock they want, then the street starts to hear all sorts of bullish rumours!
   9. The bullish news propels the public to buy the stock, and this pushes the price higher
   10. The predictions of the directors come true, the dividends are renewed, the bullish items multiply and the hyperbole from the news intensifies
   11. “But the moment there is a turn for the worse in the company's business, what happens? Do they come out with statements or warnings or the faintest of hints? Not much. The trend is now downward. Just as they bought without any flourish of trumpets when the company's business turned for the better, they now silently sell. On this inside selling the stock naturally declines.”
   12. Familiar explanations emerge, anonymous insiders assure everyone everything is OK and the decline is just caused by speculators
   13. If the stock breaks down the demand for reasons will become ‘clamorous’ but the directors will assert “underlying conditions are unchanged”
   14. The public will be dissuaded from selling out, believing the bear-raid story, they will suffer further losses
   15. The decline cannot be arrested as ‘there has been too much stock fed to the market from the inside to be digested’
   16. “The insiders knowing that trade conditions will adversely affect the company's future earnings do not dare to support that stock until the next turn for the better in the company's business. Then there will be inside buying and inside silence.”
   17. “The public ought to grasp firmly this one point: That the real reason for a protracted decline is never bear raiding. When a stock keeps on going down you can bet there is something wrong with it, either with the market for it or with the company. If the decline were unjustified the stock would soon sell below its real value and that would bring in buying that would check the decline.”

   
   
   

7. The New Haven story
   1. “Everybody knows today what only a few knew at the time.”
   2. Stock was at 255 in 1902. The premier railroad investment of New England.
   3. Everyone believed the company was unassailable, and it was widely held
   4. Eventually, as is the way of things, the directors make some foolish choices
   5. The insiders were the first to see trouble
   6. They reduced their holdings
   7. The stock declined
   8. The insiders denied any problems
   9. The insiders blamed it on reckless bear selling
   10. The stock broke to an historic low of 12! Clearly not just a ‘bear raid’.
   11. “The public might profitably consider the disadvantages under which it labours when it tries to make money buying and selling the stock of a company concerning whose affairs only a few men are in position to know the whole truth.”

   
   
   

8. The Intervale Oil story
   1. A pool had put the stock up, manipulated the price to 50
   2. The pool then sold and there was a quick break
   3. Explanations were demanded
   4. One of the financial news tickers called up brokers who would know the story
   5. And the brokers blamed “Larry Livingston” (Livermore) saying he was bear raiding

   
   
   

“In a bull market and particularly in booms the public at first makes money which it later loses simply by overstaying the bull market. This talk of "bear raids" helps them to overstay. The public should beware of explanations that explain only what unnamed insiders wish the public to believe.”

1. L begins by describing a number of tricks used to deceive ‘the unthinking public’. Things like splits (“The old price was $1 per pound package and hard to move. At 25 cents for a quarter-pound box it might go better”), ‘partial payment plans’ and insider gifts to brokers used as inducements to flog stocks.
2. “If a law were passed that would punish bull liars as the law now punishes bear liars, I believe the public would save millions.”
3. “The public ought always to keep in mind the elementals of stock trading. When a stock is going up no elaborate explanation is needed as to why it is going up. It takes continuous buying to make a stock keep on going up. As long as it does so, with only small and natural reactions from time to time, it is a pretty safe proposition to trail along with it. But if after a long steady rise a stock turns and gradually begins to go down, with only occasional small rallies, it is obvious that the line of least resistance has changed from upward to downward.”
4. “No matter how experienced a trader is, the possibility of his making losing plays is always present because speculation cannot be made 100 percent safe. Wall Street professionals know that acting on "inside" tips will break a man more quickly than famine, pestilence, crop failures, political readjustments or what might be called normal accidents.”
5. “I have said many times and cannot say it too often that the experience of years as a stock operator has convinced me that no man can consistently and continuously beat the stock market though he may make money in individual stocks on certain occasions.”
6. “There is no asphalt boulevard to success in Wall Street or anywhere else.”

That concludes the notes for 'Reminiscences', I hope you enjoyed them and got something out of them. I think there is more general wisdom in this book than there is in any 'how to trade' guide that you can buy on Amazon, for a few reasons.

1. Trading is not rocket science (though many would like to convince you it is) so there is no need to re-invent the wheel.
2. Livermore was one of the first 'celebrity' traders and the first to get such a thorough biography. Every other famous technical analyst and trader who has written a book has inadvertently (or advertently) 'borrowed' wisdom from Livermore.
3. His remark that trading and traders don't really change over time, is still largely true. Even though more trading is done by computers than ever before, those computers are coded by humans who can't help but add their human biases. Also the really big decisions (think of Jeremy Irons in Margin Call - "I don't hear the music") still get made by fallible humans, especially in times of crisis, of which the future assures us we will have no shortage.

That's the end of the book, but it's not the end of my analysis of Livermore. Up next is a bonus round (or a few) examining his later years and his advice in 'How to Trade Stocks' - a book his son encouraged him to write that hasn't been nearly as popular as this one.

1. There is a fair bit of overlap between the two books and
2. This has got to be the most repetitive, padded-out trading book I’ve ever read. The main ideas are repeated three or four times, only varying slightly in phrasing, and all for the purpose of making it more ‘saleable’ (thicker).

Market Timing: Entry/Exit

1. When to enter/exit.
   1. Use Pivotal Points to identify trend changes and confirmations
      1. This change in trend, if caught, yields the most rewards
      2. There are two kinds of Pivotals:
         1. Reversal PP -the perfect psychological time at the beginning of a major market move, a change in basic trend, can be at bottom or top of a long-term trend
         2. Continuation PP - a natural consolidation, a break of which confirms the next upward move
         3. Usually accompanied by a heavy increase in volume
         4. An essential timing device
         5. React when a pivotal point has been exceeded by 3 points

         
         

      
      

   2. When to hold ‘em, when to fold ‘em - Palm Beach Casino owner Ed Bradley
   3. Stocks are never too high to go long or too low to go short
   4. Take advantage of good luck
   5. The market is operating in future time and has usually factored in current events
   6. At the start of a move you will notice a large volume of sales with advancing prices
      1. Then a ‘normal reaction’, with less volume
      2. In a day or two activity will start again and the volume will increase
      3. It should form a new high, recovering from the reaction
      4. Eventually expect another reaction along the same lines
      5. Volume after the advance resumes will be lower, showing the stock is becoming harder to buy and so it will rise more rapidly
      6. Don’t let patience ignore danger signals, don’t let the stock go ‘stale’

      
      

   
   

2. Confirm your trade/judgment before you take a full position
   1. In a sideways market moving in a narrow channel where prices are stagnant, there is great danger in trying to predict or anticipate when and in what direction a market will move
   2. Don’t anticipate - wait for confirmation.
   3. Don’t argue with the tape
   4. When the market goes sideways and you are confused, take a vacation
   5. Wait for as many factors as possible to be in your favour - the patience makes the money
   6. Before buying have a clear target where to sell - obey your rules
   7. Only bet on the highest probabilities
      1. Probe first with small positions

      
      

   8. It is dangerous to depend on a single stock’s movement to confirm an action, so look for sister stocks to combine their prices and movements and arrive at the Key Price - this is ‘tandem trading’
      1. Key Price uses a six point basis for movements

      
      

   
   

3. Let profits ride if there is no reason to exit
   1. Don’t buck the trend

   
   

4. Cycles
   1. "I believe in cycles, life cycles, market cycles. They are hardly ever balanced. Cycles come like a series of ocean waves, bringing the high and low tides"
   2. They are unexpected, unpredictable, and have to be weathered with patience
   3. A skillful speculator knows money can be made no matter what the market conditions if they are willing to play both sides of the market
   4. The market is a study in cycles - when it changes directions it remains in the new trend until momentum weakens, but until then a body in motion tends to remain in motion
   5. In a free market prices fluctuate - the don’t go up or down all the time, which is good for the alert speculator who can play both sides

   
   

5. New all-time highs are possible signals of valid breakouts
   1. A new high can mean that the stock has broken through the overhead supply and the line of least resistance will be strongly upward
   2. The majority sell after a new high and look for cheaper stocks
   3. Never buy a stock on reactions and never short a stock on rallies

   
   

6. There are times when you should be completely out
   1. Danger signals
      1. The one-day reversal - the high of the day is higher than the high of the previous day but the close of the day is below the close of the low of the previous day and the volume of the current day is higher than the volume of the previous day - Beware!
      2. At the end of a bull market, watch for wild capitalizations - good stocks selling at 30,40,50,60 times annual earnings that normally traded at 8-12 times earnings
      3. Beware wild speculative stocks that take off for no real reason, except that they are in-favour
      4. Watch the market leaders in a bull market - when these falter it’s often a signal that the market is turning
      5. After a long trend up when volume gets heavy and stocks churn
      6. After an extended rise, during the last hour of the day all of a sudden it has an abnormal break of seven or eight points, the next morning it extends the reaction a point or two and then once more starts to rise but doesn’t follow through - that’s an immediate danger signal - an ‘abnormal’ reaction

      
      

   
   

7. Top-Down Trading
   1. Follow the line of least resistance - the evidence
      1. Behind all major movements there is an irresistible force that will be revealed later, the successful speculator only needs to know this
      2. Know if this is up or down for the overall market and individual stocks
      3. If the overall trend is not in your favour you are playing at an extreme disadvantage
      4. Go with the flow, bend with the trend, don’t sail into a gale, don’t argue with the tape

      
      

   2. Group action is a key to timing
      1. Stocks don’t move alone when they move
      2. If conditions are ripe for one company they are likely right for the group

      
      

   3. Wait until the preponderance of evidence is in your favour

   
   

1. Don’t lose money, keep your stake, your lifeline
   1. Establish stops
   2. L used mental stops
   3. Never sustain a loss above 10%
   4. Never meet a margin call
   5. Never average down - it is foolhardy to make a second trade when your first shows a loss

2. A speculator without cash is like a store with no inventory
3. Cut your losses quickly
   1. Failure to get out of large illiquid positions when given the opportunity is costly
   2. Sell losers, let winners ride
   3. Profits always take care of themselves but losses never do
   4. Keep your account so you will be in a position to enter another deal at the same volume as when you did when you were wrong

4. Probe first with small positions - the ‘probing approach’
   1. First establish 20% of position
   2. Then 20% on second
   3. Then 20% on third
   4. Wait for confirmation then make the final purchase of 40%
   5. Each of these probes is a crucial factor in establishing overall position
   6. Experience has proved to me that the real money in speculating has been in commitments that show a profit right from the start

5. Turn paper profits into realized profits periodically
   1. Put 50% of your winnings in a safe place like the bank or bonds or an annuity
   2. Cash is king
   3. Always have cash in reserve

1. Have a clear concise strategy
   1. Stick to your plan and customized rules
   2. Do not constantly change your plan
   3. Find a method that works emotionally and intellectually for you
   4. Review your past trades and their rationale - look for weaknesses to fix

The most interesting (narratively speaking) story in this book is at the very start where JLL is locked into a vault with a time-lock over the weekend where he will review all his trading history from 1923. At that time he was completely sold out of stocks and commodities ‘as he did at the beginning of every new year.” He planned to resume trading in February. The vault was stocked with food and drink mixes, but the book neglects to mention what toileting arrangements had been made. At the end of his self-imposed exile he would ‘stuff his pockets with as much cash as he desired’ and spend it over the next two weeks.

1. Patience is the key to success
   1. Sometimes your money should inactive
   2. Cash can be used at the right time to make a fortune
   3. While you are doing nothing, the speculators who feel the need to trade day in day out are laying the foundation for your next venture
   4. The vast majority of commitments on the wrong side when the broad trend swings under way

2. The market is driven by human nature which never changes
   1. Emotion, not reason, dictates the stock market just like it does most important things in life, love, marriage, children, war, crime, religion. It is rarely reason that drives people.
   2. Fundamental factors affect the markets but it is emotions that carry the extremes
   3. You must be impersonal
   4. Don’t be too confident from wins or too despondent over losses - you must achieve ‘poise’
   5. The only thing that changes in the market is the players who have no memory of previous crashes

3. You can’t tell if your judgment is right until you put your money on the line
   1. Wait for clues until you move, anticipation is the killer, the brother of hope and greed
   2. It takes four mental characteristics to be a superior trader
      1. Observation - see facts without prejudice
      2. Memory - remember key events correctly, objectively
      3. Math
      4. Experience - learn from mistakes
      5. Impulses are the subconscious mind’s way of alerting you
      6. Aristotle - we are the sum total of our experience

4. Don’t fight the tape
   1. The big money is made by sitting and waiting, not thinking
   2. Play the market only when factors are in your favour
   3. No one can play all the time and win
   4. Remove hope from your trading lexicon - hoping a stock will do something is the true form of gambling
   5. It is human emotion that gets in the way of human intelligence

5. The only thing to do when you are wrong is to be right by ceasing to be wrong
   1. Cover losses quickly
   2. Don’t spend a lot of time determining what moves the price of a stock
      1. If you wait until you have the reason you have missed the opportunity

   3. Examine the tape - see the what, instead of asking why
   4. React quickly to the unexpectable, if it is a windfall, grab it, if it is bad news, hit the road
   5. The market must be studied deeply - not casually
   6. The market is never obvious

6. Ignore tipsters - all tips are dangerous
   1. A trader can be convinced to move away from his own convictions by listening to the advice of others, persuaded that his judgment is faulty
   2. Play a lone hand - make your own decisions by yourself
   3. Be secretive and silent in your trading - don’t disclose winners/losers
   4. Certain guides used by others may be of no use to you
   5. Inside information is dangerous

7. Do not delegate - the task is yours alone

1. The action is with the leading stocks, these change with every new market
2. Limit the number of stocks you follow in order to focus
   1. Confine your studies of market movements to the leaders
   2. If you can’t make money with the leaders you won’t with laggards

3. Cheap stocks often appear to be bargains after a large drop, but they often continue to fall or have little potential to rise - leave them alone
   1. A stock that has made a precipitous drop, if it doesn’t rebound quickly will most likely fall away further
   2. Such a stock has an inherent weakness whose reason will be revealed later

4. Stocks have personalities like human beings
   1. Aggressive, reserved, hyper, high-strung, direct, logical, (un)predictable

5. Trade the leading stocks in the leading groups
6. A speculator is not an investor
   1. Don’t get bogged down with long-term commitments
   2. The money lost by speculators pales in comparison to investors who let their losses run

7. Charts never appealed to Livermore, as he found them confusing - he preferred record-keeping
   1. Keep your own records

Note how many of these principles match or overlap with the advice in Tier’s book. They were either inspired by Livermore or they are simply proven in the forge of experience.

1. Livermore was married 3 times - his first marriage ended after some bad trades and he asked her to pawn jewellery he had bought for her and she refused
2. Livermore married a dancer at 40 and had a few affairs. He bought expensive property and in 1927 he was robbed at gunpoint. His second wife had a drinking problem and eventually they divorced where she received a massive $10M settlement. The house they had bought for 3.5M was sold by her for only 222,000.
3. By 56 it was clear he was no longer wealthy and was contemplating bankruptcy, but the exact reasons aren’t clear. Tom Rubython says “The final blows were caused in 1933 when Livermore went long the market just as it fell back near its 1932 lows.” We also know he had some tax problems and had to pay off an $800,000 tax bill.
4. Livermore was planning a comeback but new regulations, the new SEC, may have made that more difficult.
5. Dorothy, the second wife, shot Livermore’s son during a drunken feud, undoubtedly stressful though the son survived
6. Livermore’s third wife was wealthy enough that Liveremore may not have felt desperate to attempt his last comeback
7. It’s clear that depression ran in the family as his son and grandson both died by suicide

So what can we learn from this?

1. Follow your own rules - put 50% of your winnings away and don’t touch them
2. Just because you think you have a winning system doesn’t mean you weren’t lucky, possibly very lucky and luck is not dependable
3. Live modestly (if you can)
4. It’s cheaper to keep her
5. You are more than your money. Don’t let the size of your account determine your self-worth and get help when you need it.

Next: Al Brooks : Reading Price Charts Bar by Bar but updates may not be so frequent as I am spending more time on my robots, and I found this book extremely difficult to decipher.