Trade like Jesse Livermore / Richard Smitten - OS/2 API Research

14 TRADE LIKE JESSE LIVERMORE
tradictory and confusing. You may ask yourself: Isn’t Livermore’s whole
theory a way of anticipating the direction of the market before it
happens?
In the Livermore Trading System, the answers are always apparent
in the actual performance of the stock. It is the trader’s job to investigate
the facts and solve the mystery, to be like Sherlock Holmes—only
deal in the facts that are presented by the stock—Do not anticipate
what will happen next—Always wait for the market to confirm
your trade.
The successful speculator must formulate his plan in advance of a
stock’s movement. Because the market is driven not by logic but by emotion,
it is most often unpredictable and goes against logic. Livermore believed
that to even out the odds and increase the safety of a trade the
trader had to wait for the market to confirm his judgment. This required
patience and discipline, two rare traits in most people. But if you follow
this advice, you are in effect getting insurance on your position because
you have waited until the market has shown you what it is going to do.
The rule is not to place your trade until the market itself confirms your
opinion or shows you a different path to follow.
News items can often be deceiving. They can have less of an effect on
the market than one might think or, by contrast, they can have a greater
effect. The point is that there is no telling what effect news will have. As
can be seen by the previous charts (Figures 2.1, 2.2, and 2.3), after the
tragedy of 9/11 the market went down, but not as deeply or for as long as
had been predicted. This was because the market had already been declining
for more than a year.
It is too difficult to know what is going on in the inner workings
of the market at the time of a news release. To illustrate: Perhaps the
market has been in a long-term period with plenty of solid momentum
behind it. In that case, a bullish or bearish piece of news may have
no effect. The market also may be in an overbought or oversold condition
and absorb the news item without a tremor, effectively “ignoring”
the news.
When dealing with the news and its impact on the stock market,
do not anticipate by using your own judgement and in effect “guess”
what will happen. You must study the action of the market itself. As
Livermore said: “Markets are never wrong—opinions often are. He also
remarked:
Timing in the stock market is the key to success. A trader may deduce
that a stock is going to go up or down in a big way and eventually
he may be correct. In fact, if you have any experience in the
market this will ring true. I knew that stock was going to go up ten