Jesse Livermore Tells Us How to Make a Million Trading

“The only time I really ever lost money was when I broke my own rules… What beat me was not having brains enough to stick to my own game.”

“A trader has to fight a lot of expensive enemies within himself.” – Jesse Livermore

Make more money as a winning trader

Make more money as a winning trader

In light of my horrific trading performance last week (thank God for a NEW week!), I decided to take some valuable counsel from the legendary Jesse Livermore to help me get back on a winning track.  After all, nobody ever mastered trading better than Jesse did.  So I’m going through a few of the trading principles from this master trader, and working to freshly implant them within my slightly addled brain – feel free to join me in that endeavor.  The very first one noted above is simply stick to my own rules.  You don’t have to follow everyone else’s rules, but you should at least follow your own!

My worst rule violation last week was ignoring my basic money management rule of cutting my losses at, worst case, a 20% drawdown on the day.  Even the most unfortunate of traders should rarely, if ever, experience the 7 or 8 trading days in a row of maximum drawdown that it would take operating under that rule to completely wipe one out.  If I had abided by that rule, Monday might still have been a bad day, but it wouldn’t have rolled into becoming a catastrophic week.  Bad trading days are just blips in equity; bad trading weeks take a lot more work to overcome.  Instead of abiding by my money management rule, I allowed my emotions to get the better of me (see second quote above) and just tossed common sense and good trading wholesale out the window.  I hope and pray that I will never make that mistake again – it’s just a foolish waste of trading capital.

“I must be physically well rested and free of stress in order to have the necessary energy and focus to trade well.” – Jesse Livermore

It’s no crime to occasionally not be in an ideal trading state of mind.  Some days you’re just not in “a good space”.  The crime is in not recognizing that fact and acting accordingly, which means either successfully adjusting your state of mind or staying the hell away from the trading floor.  Me, I did neither, and sure enough it resulted in an abysmal trading day.  Focus – that is, successfully focusing your mind solely on the market and the day’s trading – is essential to success in forex trading.  Ordinarily, I do not allow anything else of consequence to draw my attention until after I have finished trading for the day.

“A trader who didn’t make mistakes would own the whole world in a month.  But if he didn’t learn and profit from his mistakes, he wouldn’t own a blessed thing.”

“Losses are the necessary tuition fee you pay to learn how to become a better trader.” – Jesse Livermore

I had to laugh for a second – That’s true, if a trader never made a mistake, never entered a losing trade, he would indeed probably own the whole world in a month.  But that just doesn’t happen.  Even the best of us make mistakes, no one ever trades perfectly, so the next best thing is to learn from our mistakes.  With that in mind, I did finally summon the courage to take a (cringing) look at my trading journal from last week, which confirmed massive violation of my own trading rules and strategy.  For instance, I ignored the guideline of “3 consecutive candles in the same direction indicates a trend in that direction”, which left me trading against the immediate trend, stubbornly and unwisely sticking with trades that then turned into much bigger losses than they had to be.

”It is emotionally difficult to review your mistakes, since the speculator must wade through his own bad trades and blunders. And these are not just simple blunders; these are blunders that cost money. Anyone who has lost money by investing poorly knows how difficult it is to re-examine what occurred. The examination of a losing trade is tortuous but necessary to ensure that it will not happen again.” – Jesse Livermore

Keeping a trading journal is one of the best practices a trader can develop.  Yes, it takes a little time to review your trading, but that time is a well spent investment in becoming a better trader.  How successful would a sports team be that never bothered to look at the game films of their losses?  A forex trading journal enables you to very clearly see where your trades went wrong – or where they went right!  You can learn things from reviewing your trading journal that you’d likely never have thought of otherwise – for example, I knew one trader whose review of his trading showed him that he won more than 80% of the trades he put on between 10 and 11 A.M., while he lost almost 80% of the trades he placed between 1 and 2 P.M.  That’s just something that one wouldn’t ordinarily even think to look at, but that can jump off the page at you when reviewing your trading journal.  Another helpful bit of information that can be gleaned from reviewing your trades is the amount of your average profit per trade.  Let’s say that a review of your trading over the course of a month or more clearly shows that your maximum profit is rarely more than 30 pips.  Then you might consider in the future taking profits whenever you are 30 or more pips ahead, knowing that, historically, you’re more likely to be stopped out than you are to make additional profit on the trade.  Finally, something else you may learn from a trading journal is which currency pairs you trade best – maybe you’re just a flat out genius at trading Gbp/Usd, but you don’t trade Eur/Usd worth a flip.

If you don’t already have a trading journal, you can download the same one I use, absolutely free, at

“Taking a wrong step in the market is nothing to be ashamed of.  But this time, having taken the first wrong step, I then took the second and the third, and of course it muddled me all up.”

“Emotional control is the most essential factor in playing the market…Don’t get too confident over your wins or too despondent over your losses.” – Jesse Livermore

I, unfortunately, did not stop at one wrong step early last week – I let “bad” snowball its way to “worse”.  But the challenge for me now is to follow the second note of advice there and not excessively fret over the losses.  It happened, accept it and move on.  Being upset about losses won’t bring the money back – what will bring the money back is resolutely seeking to learn from your mistakes and trade better going forward.  It’s okay to give yourself a good, solid kick in the butt for making mistakes that you know better than to make, but it’s dangerous to your future trading success to let that anger or frustration linger, as its psychological and even physical effects can interfere with your ability to make objective analysis and trading decisions.  The acceptance of losses is a key discipline for winning traders.  So go ahead and beat yourself up a little, but then you’ve got to let it go and get back to making money.

When I’ve fallen into a losing streak, while it’s important to take at least a brief break, for me the only way to get back to winning is to continue trading until I feel myself successfully getting back into the groove of nailing trades correctly – I have to recover trading well in order to escape trading badly.  Not to compare myself with the incomparable Michael Jordan, but Jordan always said that the way to overcome a shooting slump was to keep on shooting until you felt yourself getting back into “the zone” of shooting well.

So, what now?  Now, having hopefully learned something and become a little wiser, get back to making money.  After all, we’re still just a little bit short of our goal of a million dollars. 🙂

The teachers of neuro-linguistic programming, people like Anthony Robbins, stress the importance of using positive affirmations to achieve success – affirmations like “I am a winning trader”.  The trick is that you have to actually believe that, not just say it, but sometimes saying it repeatedly to yourself can help you believe it.  (You certainly don’t want to be telling yourself that you’re a losing trader!)  Well, I am a winning trader, so my plan for this week and every other week in the future is to trade smarter, win and make money.

Accept the losses, learn the lessons, and go make a million.  After all, that’s exactly what Jesse Livermore did.

“I got up to fifty thousand, and two days later went broke. But I had no other business and knew no other game, so there was nothing for it but to start again.”

“I was on my way to a bigger fortune than I had lost.” – Jesse Livermore

Jack Maverick

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