the channel.
Livermore Pattern Recognition Timing Keys
59
Figure 4.7 (Continued)
It should be noted that Livermore did not use charts. He used hiscomplex mathematical formulas (explained in the Secret Market Key section of this book (Chapter 11)) to achieve the same effect. Charts noware used to illustrate the Livermore Trading System details because theyare easily available to the trader and have become far more accessibleand improved today.As stated, the Reversal Pivotal Points are really the beginning andend points of trend lines. They appear when the trend is reversing. Figure4.11 of the Nasdaq clearly shows a Reversal Pivotal Point at the arrowin November/December. Figure 4.12 of Best Buy shows a clear PivotalPoint in November/December.Continuation Pivotal Points, on the other hand, indicate that anew formation is appearing, although the direction has not yet been
60
TRADE LIKE JESSE LIVERMORE
Figure 4.8 This chart is another clear example of trend linesand break-outs.
established. When these form, the trader has a terriﬁc opportunityto wait and see what is next in store for the stocks. The ContinuationPivotal Point for Merrill Lynch appears in August/September andgoes on to climb higher in Figure 4.13. Figure 4.14 shows Verisignwith two Continuation Pivotal Points in November/February and June/December.With a little practice, the ordinary trader will soon become skilled atdrawing in these trend lines. The results, with patience, can be outstanding. When the Continuation Pivotal Points form, the trader must battlewith himself not to anticipate the break-out by superimposing his ownlogic onto the situation. He must sit on his hands and wait for the conﬁr-
Livermore Pattern Recognition Timing Keys
61
Figure 4.9 In this ﬁrst of two examples, we are using 10 days, and a 6month time frame for the same stock. All these various time frames can besuccessfully traded. The volatility of the stock is in direct proportion to thetiming—the shorter the time frame, say one day the more volatile themovements of the stock.
mation that the break-out is valid and the direction obvious, even if hemisses a few points on the trade.Figures 4.15 and 4.16 show how trend lines appear and can be drawnin a trending stock. The Livermore trader wants to seek out trendingstocks with low volatility. The ﬁrst chart, Merrill Lynch, is a trending stockand can be fairly easily read and traded on its pivotal points. The secondchart, Microsoft, is a much more choppy and confused stock with notrend or clear direction.
62
TRADE LIKE JESSE LIVERMORE
Figure 4.9 (Continued)
OTHER RECURRING PATTERNSSpikes and One-day ReversalsLivermore was very wary of any aberration in the price or volume of astock that he was tracking. Sometimes, the price would spike, accompanied by abnormally heavy volume of at least a 50 percent increase overthe average daily volume. This often led to what he named One-Day Reversals or trading climaxes. They often were like a red ﬂag warning of achange of trend.An aberration to him was any strong deviation from what wasnormal for the stock. He considered a spike in the stock price, highvolume, as well as low volume, all aberrations, deviations from thenorm. To him, these were possible danger signals, and often signals toexit a trade.The spiking pattern is often a result of pent-up energy in the stock, asin a pressure cooker. It is the follow-through action of the stock that then
Livermore Pattern Recognition Timing Keys
63
Figure 4.10 In this second of two examples, we are using 10 days, and a 6month time frame for the same stock. All these various time frames can besuccessfully traded. The volatility of the stock is in direct proportion to thetiming—the shorter the time frame, say one day the more volatile themovements of the stock.
becomes important to observe as to what the next action will be. Thesespikes are often a reﬂection of exhaustion in the stock’s momentum, andthey often appear at the end of a move, like a last gasp. They can provide aterriﬁc signal for the observant, savvy trader.The One-Day Reversal (shown in Figure 4.17) was a strong signal forLivermore, a signal that made him sit up and take notice.A One-Day Reversal occurs when the high of the day is higher thanthe high of the previous day, but the close of the day is below the close ofthe previous day, and the volume of the current day is higher than the volume of the previous day.This scenario was a potential screaming danger signal to Livermore.Why? Because all during the stock’s rise, it followed the trend, the line ofleast resistance, it had only normal reactions. Then, all of a sudden, it had
64
TRADE LIKE JESSE LIVERMORE
Figure 4.10 (Continued)
an abnormal, sudden aberrant reaction . . . it moved 15 points in only 3days on heavy volume—it has broken its pattern! Even though the stockmay have risen in price, this is not a positive sign, but rather a danger signal that must be heeded!It was Livermore’s belief that if you had the patience to sit with thestock all during its rise, now after the one-day reversal pattern appearsyou must have the courage to do the right thing and acknowledge thisdanger signal. You must now consider selling the stock, because you havereceived a valid warning signal.
Break-Out from a Consolidating BaseStocks sometimes take time to consolidate and build a base before continuing their movement. This base allows time for the stock to take abreather and a chance for the sales and earnings to catch up to the new
Livermore Pattern Recognition Timing Keys
65
Figure 4.11 The Reversal Pivotal Points are really the beginning and endpoints of trend lines. They appear when the trend is reversing. This chartof the Nasdaq clearly shows a Reversal Pivotal Point at the arrow inNovember/December.
valuation of the stock. In many ways, it is similar to a long ContinuationPivotal Point in function, although the formation looks different, and itusually takes longer for the Consolidating Base to form.When the Consolidating Base occurs, the same patience must be applied to the situation as required with the Continuation Pivot Point—don’tanticipate—rather wait for the stock to tell you by its action which direction it is going to go.A common pattern of a Consolidating Base is called the saucerpattern. This pattern shows a slow, often long-term consolidating bottom that forms a kind of extended gradual change in trend as it develops into full maturity. To recognize this pattern, the trader must seea clear arc with tight trading ranges at the nadir, or bottom, of the arc. A
66
TRADE LIKE JESSE LIVERMORE
Figure 4.12 The Reversal Pivotal Points are really the beginning and end pointsof trend lines. They appear when the trend is reversing. This chart on Best Buyshows a clear Pivotal Point in November/December.
good trader can easily see the three boxes in Figure 4.18 of LucentTechnologies. These boxes are really consolidations, each at a higherlevel.As stated, the pattern here in Figure 4.19 is very similar to theContinuation Pivotal Points pattern, where the buyers and the sellersare about equal in power. The stock lags along, or languishes and consolidates, waiting for the next move. These extended consolidationsoften come at the end of long market declines or advances. But thekey rule still applies: do not anticipate the next move—wait patiently for the market to tell you—to conﬁrm the movement either upor down.
Livermore Pattern Recognition Timing Keys
67
Figure 4.13 When Continuation Pivotal Points form, they give the trader aterriﬁc opportunity to wait and see what is next in store for the stocks. TheContinuation Pivotal Point for Merrill Lynch appears in August/September andgoes on to climb higher.
Break-Out on New High (or Low)Livermore was one of the ﬁrst people to realize that stocks breakingout to new highs often took off from there and had astounding runs.Large proﬁts can be derived from this simple fact. As stated by Livermore: Often in the stock market people do not see what is right undertheir noses.The thing with Livermore’s genius was that he observed things like Industry Group movement, Pivotal Points, and break-outs to new highs, andso was able to incorporate these factors into his trading system.Although others may have observed the same or similar things, theydid not necessarily use this information in their trading. In fact, you willﬁnd that most traders have no real consistent proven system.They oftendepend on tips, instincts, analysts, brokers, friends . . . even astrologers.
68
TRADE LIKE JESSE LIVERMORE
Figure 4.14 This chart shows Verisign with two Continuation Pivotal Points inNovember/February and June/December.
Livermore’s logic was always simple and to the point. New highs ornew low break-outs were always good news for Jesse Livermore. Why?For him, they meant that the stock had pushed through the overhead resistance or underlying support and was very likely now to advance.The theory behind heeding this pattern was that Livermore had observed that people do not want to sell their stocks for a loss. So, if theymissed selling on the high, which happened to the bulk of investors, theywould sit with the stock through thick and thin and, when it rallied, if itdid in fact rally, and proceeded to get back to the old high, they woulddump their stock to recoup their losses. So, when the stock broke out tonew ground above the old high this meant to Livermore that all that oldoverhanging stock was now cleared out of the way. This meant clear sailing ahead, in most cases. So, he was in effect buying the stock when themajority of people had sold theirs and when the stock was in position tomake a new run.
Livermore Pattern Recognition Timing Keys
69
Figure 4.15 Merrill Lynch is a trending stock and can be fairly easily read andtraded on its Pivotal Points.
Conversely on the short side, new lows mean people have givenup on the stock and are now dumping it, throwing it overboard to getwhatever they can for it. This often leads to a rapid fall into oblivion, orthe stock proceeds to form a climax bottom, similar to the One-DayReversal that we have already discussed, only on the downside. Thestock will most often ﬁnally bottom out and form a Reversal PivotalPoint, and a new upward trend will begin at this juncture. At thispoint, the astute trader may want to reverse his position and move to along trade.Any trader will tell you that this sounds simple, but is difﬁcult to dobecause the natural instinct is to buy cheap and sell dear. In this case, theLivermore Trading System instructs the trader to do the opposite and paytop dollar for a stock that has broken through the old high and now has aclear open ﬁeld to run.
70
TRADE LIKE JESSE LIVERMORE
Figure 4.16 Microsoft is a choppy and confused stock with no trend orclear direction.
Figure 4.20 shows a New High Break-out Formation that appearedon a regular basis to Livermore in numerical form. Charts have beenused for expediency.Why these formations repeat themselves is unknown. Livermore attributed this repetition to human nature: “All through time, people havebasically acted the same way in the stock market as a result of greed, fear,ignorance, and hope—that is why the formations and patterns recur on aconstant basis. The patterns the trader observes are simply the reﬂectionsof human emotional behavior.”
IMPORTANCE OF VOLUMEFrom the beginning of his trading career, Livermore was keenly aware ofthe importance of volume. Volume is a key factor in recognizing true Piv-
Livermore Pattern Recognition Timing Keys
71
Figure 4.17 A One-Day Reversal occurs when the high of the day is higherthan the high of the previous day, but the close of the day is below the close ofthe previous day, and the volume of the current day is higher than the volume ofthe previous day.
otal Points and other recurring patterns. It was obvious to Livermore thatas the volume drastically changed in a stock, it was a clear aberration ordeviation from the normal behavior of the stock. But was the volume accumulation or was it distribution? Livermore was an expert at detectingdistribution. He had formed a strong opinion on that subject, because heknew how stocks were distributed by the pool runners of his day. Thepool runners, experts like Livermore, were often charged with distributingthe stock of the insiders who had formed a pool with their own stock forthe purpose of controled distribution.How did the pool runners do it? The same way as they do it today.Stocks were never distributed on the way up . . . they were distributed onthe way down. The reasoning was simple—people will not take theirlosses when they should. The public will hold on to their stock as it dropsand wait until it rallies back to the price where they bought it, so they can
72
TRADE LIKE JESSE LIVERMORE
Figure 4.18 A common pattern of a consolidating base is called the saucerpattern. This pattern shows a slow, often long-term consolidating bottom thatforms a kind of extended gradual change in trend as it forms to full maturity. Torecognize this pattern, the trader must see a clear arc with tight trading ranges atthe nadir, or bottom of the arc. A good trader can easily see the three boxes inthis chart of Lucent Technologies. These boxes are really consolidations, each at ahigher level.
sell it. This is why so many stocks falter as they rally back to the old high.The people who bought at the high are now selling to get their moneyback—because they got a serious fright—and are now happy to recouptheir losses.To the astute trader, a change in volume is an alert signal. It almost always means that there is something afoot, a change, a difference, a possible aberration. A serious change in volume always caught Livermore’sattention. He would ask himself—was it the volume leading to the blowoff, setting the stage for a decline, or was it a real interest in the stock,was it being accumulated getting ready to be driven higher?
Livermore Pattern Recognition Timing Keys
73
Figure 4.19 The Continuation Pivotal Point pattern occurs when the buyersand the sellers are about equal in power so the stock lags along, or languishesand consolidates waiting for the next move. These long consolidations often comeat the end of long market declines or advances. But the key rule still applies: donot anticipate the next move—wait patiently for the market to tell you—to conﬁrmthe movement either up or down. Don’t worry about clipping every point, wait forthe insurance of having the market tell you what to do next. It is an importantpart of the Livermore Trading System.
Livermore never spent any time looking for the reason why the stockwas attracting a lot of volume. He simply took it as an axiom that volumewas an alert signal. It was happening, that why was enough for him. Heknew that the actual reasons why would be revealed later when thechance to make money was gone.Conversely, if there is heavy volume, but the prices stall and do not goup and make new highs, and there is no strong continuation of the currentmove, beware. This is often a strong clue, a warning, that the stock mayhave topped out and the accumulation is over and the stock is now goingthrough a distribution phase.
74
TRADE LIKE JESSE LIVERMORE
Figure 4.20 A break-out to a new high. One of Livermore’s mostbullish patterns.
Note: The end of a market move is usually pure distribution, as stocksgo from strong hands into weak hands, from the professionals to the public, from accumulation to distribution. It is often a market move by thepromoters of the stock, a deception, to trick the public, who view thisheavy volume as the mark of a vibrant, healthy market going through anormal correction, not a top or a bottom.This last gasp of heavy volume also provides a great opportunity tosell out any illiquid or large holdings. Livermore knew it was foolish toever try to catch the tops or the bottoms of the moves. It is always betterto sell large holdings into an advancing strong market when there isplenty of volume. The same is true on the short side, you are best to coverthe short position after a steep fast decline.Livermore was always on the alert for volume indications as key signals at the end of a major move, either in the entire market itself or in anindividual stock. Also, he observed that at the end of a long move, it wasnot uncommon for stocks to suddenly spike up in a straight shot withheavy volume and then stop and roll at the top, exhausted. Then they
Livermore Pattern Recognition Timing Keys
75
would retreat, downward—never to make a new high before the onslaught of a major correction.As discussed before, there are two main trading systems available tothe trader. The ﬁrst is for those who believe that the stock market is a welldesigned rational, logical arena, for buyers and sellers to meet who buy andsell on what they feel is the fundamental value of a stock. These traders orinvestors believe that the stock market price is reﬂective of such things as acompany’s earnings performance, cash ﬂow, balance sheet, and factory capacity, as well as future marketing prospects—earnings and sales.These fundamentalists try and factor in the myriad reasons why astock should earn more or less and therefore predict that the price will gohigher or perhaps lower in the future—because it reﬂects the stock’s earnings potential and overall performance. Put simply, these types of tradersand investors believe the stock market is an orderly place and the price ofa stock is based on logical deductive reasoning. If the market movesagainst them, they simply conclude that they have misanalyzed the situation or not accounted for all the factors in a proper manner.The other group, which included Jesse Livermore, believed that thestock market is made up of human beings subject to human frailties. Livermore believed that most human behavior in the stock market was basedon emotions, not logic, and people mostly acted in the market out of emotions rather than considered and deliberated reason. Therefore, he believed that a trader had to capitalize on the emotionalism of the marketand ride along with that tide, not ﬁght against it or try to explain it.This theory is commonly called technical analysis, which involves theuse of charts, pattern recognition, or mathematical algorithms to try andforecast the future price direction of the stock market as well as individual stocks. A major factor in technical analysis is the belief that all the major factors that inﬂuence the price of a stock, the basic information suchas political events, natural disasters, personnel shake ups, earnings reports, and other psychological factors are absorbed and quickly discounted in the actions of the actual market itself.Stated differently, Livermore believed the effect of all these externalfactors will show up quickly in the action of stock itself, primarily in theprice movement. Therefore, the answer will appear in the chart itself. So,the trader should concern himself with what is happening not trying topredict what will happen!Stock prices are determined in a way similar to an open auction, inwhich an item is worth whatever a person is willing to pay for it at thattime. This is not an easy concept for most people to grasp. How can astock be worth $20 at noon and $15 at two o’clock? After all, it’s the samestock. The trader soon learns in the stock market that a stock is worthwhat a buyer will pay for it at any given moment.
76
TRADE LIKE JESSE LIVERMORE
One of Livermore’s favorite books was: Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, ﬁrst published in1841. This book describes John Law and the Mississippi land bubble andthe seventeenth-century tulip craze when a single tulip bulb sold for morethan four oxen, eight pigs, twelve sheep, two hogsheads of wine, andmuch more. This was also a favorite book of Bernard Baruch, a fabulousstock trader and close friend of Livermore’s who also was one of the fewpeople that did well in the crash of 1929.In the ﬁnal analysis there are only two pieces of information that atrader should look at—the price (high, low, close) of a stock and the volume (amount of shares traded). Remember, at the end of a day of trading,everything boils down to only these two factors—price and volume. All ofthe emotion is gone, all the guesswork disappears. The key information isalways available to all the traders at basically the same time, yet sometraders make money while others lose. It was Livermore’s belief that theanswers were always present in this factual information. If they are notclearly discernable to the trader, he should refrain from trading until theyare clear. Why a stock or the stock market itself acted as it did was usuallytoo vast a subject to study, too complex for any person, computer, or system to analyze.Many technical traders place little importance on volume—not sowith Jesse Livermore. The study of volume was a key element to be carefully analyzed at critical moments of a stock’s life and history.Livermore believed that anyone who is inclined to speculate shouldlook at speculation as a business and treat it as such—not regard it as apure gamble. He was convinced that speculation is a business in itself, andthose people engaging in that business should determine to learn and understand it to the best of their ability with all the informative data available through technology.Livermore once said to a friend: “In the forty years which I have devoted to making speculation a successful business venture, I have discovered and still am discovering new rules to apply to that business.”
CHAPTER 5
PerfectingMoneyManagement
M
oney Management is one of the essential three pieces of the puzzlethat fascinated Livermore: Timing, Money Management, and Emotional Control are the main headings of his trading system.Livermore had ﬁve main rules in managing his money. He attemptedover the years to explain his entire trading theory to his sons—MoneyManagement was a big part of it. But the sons never responded to their father. They were not interested in the stock market.The excerpt below is from Jesse Livermore World’s Greatest StockTrader by Richard Smitten, published by John Wiley & Sons, Inc.One day Livermore called his two sons into the library at “Evermore” on Long Island. He sat behind the massive desk and the twoboys sat down in front of him. He leaned forward and took a wadof cash out of his pocket. He peeled off ten one dollar bills. He didthis twice, then folded the bills and handed each boy a pack often ones.The boys sat looking at him, each holding their money. “Boys, always carry your money folded and in your left pocket. Go ahead doit. You can keep the money.”The boys did as they were told and put the folded money in theirleft pockets. “You see, pickpockets always go for a person’s wallet,which is usually in the back pocket. Or they will come up behind youand go for your right front pocket, because most people are righthanded. You all right with this so far, boys?” he asked.The boys nodded.77
78
TRADE LIKE JESSE LIVERMORE
He continued. “All right, that’s why you keep your paper moneyfolded in your left pocket. See, if a pickpocket gets into your leftpocket, and he gets that close to your balls, you’re going to knowabout it.”The boys looked at each other.Their father continued. “Don’t ever lose your cash boys—that’sthe moral of this story. Keep it close to your balls, and don’t let anyone near it.”
MONEY MANAGEMENT RULE 1:DON’T BUY YOUR ENTIRE POSITION ALL AT ONE TIMEHe liked to call this his probe system. Don’t lose money, don’t lose yourstake, don’t lose your line. A speculator without cash is like a store ownerwith no inventory. Cash is your inventory, your lifeline, your best friend—without cash you’re out of business. Don’t lose your damn line!Livermore felt that it is wrong and dangerous to establish your fullstock position at only one price. Rather, you must ﬁrst decide how manyshares you want to trade. For example, if you want to purchase 1000shares as the full ﬁnal position do it this way:Start with a 200-share purchase on the Pivotal Point—if the price goesup, buy an additional 200 shares, still within the Pivotal Point range. If itkeeps rising, buy another 200 shares. Then see how it reacts—if it keepson rising or corrects and then rises, you can go ahead and purchase the ﬁnal 400 shares.It is very important to note that each additional purchase must bemade at a higher price. The same rules, of course, would apply to selling short, only each short sale would be at a lower price than the preceding one.The basic logic is simple and concise: Each trade, as it is establishedtoward the total 1000-share position, must always show the speculator aproﬁt on his prior trades. The fact that each trade showed a proﬁt is livingproof, hard evidence, that your basic judgement is correct in the trade.The stock is going in the right direction—and that is all the proof youneed. Conversely, if you lose money, then you know immediately that yourjudgment was wrong.The tough psychological part for the inexperienced speculator is topay more for each position. Why? Because everyone wants a bargain. Itgoes against human nature to pay more for each trade. People want to buyat the bottom and sell at the top.The speculator may choose a different ratio for purchasing the stock
79
Perfecting Money Management
than Livermore’s ratio of 20 percent on the ﬁrst purchase, 20 percent on thesecond purchase, 20 percent on the third purchase, and a ﬁnal purchase of40 percent. He could, for instance, purchase 30 percent as the ﬁrst probe position, 30 percent as the second and 40 percent for the ﬁnal probe position.In summary, it is up to each individual speculator to decide the ratiothat works best for him. Livermore simply outlined what worked best forhim. The main money management rule is comprised of three factors:1. Do not take your entire position all at once.2. Wait for conﬁrmation of your judgment—pay more for each lot you
buy—dollar average upward.3. At the beginning of each trade ﬁrst establish in your mind the total,exact amount of shares you want to purchase if all goes well, or specify the amount of dollars you are willing to commit; do this before youbegin the trade.
MONEY MANAGEMENT RULE 2: NEVER LOSEMORE THAN 10 PERCENT OF YOUR INVESTMENTHe called this his Bucket Shop rule because he learned it in the bucketshops as a young man, when he worked all his trades with 10 percent margin. In the bucket shops, if the price of the stock went down below yourmargin requirements you were automatically sold out. If the loss exceeded the 10 percent limit, you were sold out and lost your bet. The 10percent loss rule became Livermore’s most important rule for managingmoney. In some respects, it is also a key timing rule, since it often automatically sets the time to exit a trade—when you have lost 10 percent ormore of your invested capital, you must exit the trade. Also, a trader mustset a ﬁrm stop before opening a trade. The consequences of big losses aredrastic—you must gain back 100 percent to cover a loss of 50 percent.
TABLE 5.1 Livermore Percentage Loss TableStarting Position
$1000
Amount Lost
Remainder
%Loss
%to Recover Loss
$ 80100200300400500
$920900800700600500
8.010.020.030.040.050.0
8.711.125.042.866.6100.0
80
TRADE LIKE JESSE LIVERMORE
Also understand that when your broker calls and tells you he needsmore money for a margin requirement on a stock that is declining, alwaystell him to sell out your position. When you buy a stock at 50 and it goes to45, do not buy more in order to average out your price. The stock has notdone what you predicted; that is enough of an indication that your judgment was faulty! Take your losses quickly and get out.Remember, never meet a margin call, and never average losses.Many times Livermore would close out a position before suffering a10% loss. He did this simply because the stock was not acting right fromthe start. He told friends that often his instincts would whisper to him,“ ‘J.L., this stock has a malaise, it is a lagging dullard or just does not feelright,’and I would sell out my position in the beat of a bird’s wing.”Perhaps this was the inner mind working, distilling numerical patterns and formations that he had seen thousands of times before, andsending subconscious signals to his brain, unconsciously registering repeating patterns to be stored in his memory bank. Perhaps these patternswere subliminally remembered and awakened when recognized. Whatever it was, he learned over the years, through many of his market experiences, to respect these instincts.He had observed countless times that people often become “involuntary investors.” They buy a stock that goes down, and they refuse to selland take their loss. They prefer to hold on to the stock in the hope that itwill rally eventually and climb back up. This is why the 10% rule is essential. Livermore’s advice: Don’t ever become an involuntary investor. Takeyour losses quickly! Easy to say, hard to do.If he bought a stock with a certain scenario in mind for what heexpected the stock to do and it did not follow through with the expected scenario and go up immediately, he often just went ahead anddumped it, sold it automatically. He also never looked back—he hadno self-recriminations after a bad trade or bitter thoughts if the stocklater took off. He did, however, often study the trade to see what he haddone wrong.
MONEY MANAGEMENT RULE 3:ALWAYS KEEP A CASH RESERVEThe successful speculator must always have cash in reserve, like a goodgeneral who keeps troops in reserve for exactly the right moment, whenthe odds are in his favor, and then moves with great conviction, and commits his reserve armies for the ﬁnal crushing victory.There is a never-ending stream of opportunities in the stock market. If
Perfecting Money Management
81
you miss a good opportunity, wait a little while, be patient, and anotherone will come along.Livermore used the analogy of playing cards—for him it was highstakes poker and bridge. He believed it was only human nature to want toplay every hand. This desire to always be in the game, is a common ﬂawand one of the speculator’s greatest enemies in managing his money. Itwill eventually bring about disaster, as it had brought bankruptcy and ﬁnancial disaster to Livermore several times in his early career. The observation made below is a critical factor in understanding the Livermoretrading system.There are times when playing the stock market that your moneyshould be inactive, waiting on the sidelines in cash to come into play inthe stock market. It was Livermore’s belief that in the stock market:Time is not moneyTime is timeAnd money is money.Often money that is just sitting can later be moved into the right situation at the right time and make a vast fortune—patience, patience, patience is the key to success—not speed. Time is a cunning trader’s bestfriend if he uses it right.
MONEY MANAGEMENT RULE 4:YOU NEED A GOOD REASON TO BUY A STOCKAND YOU NEED A GOOD REASON TO SELLStick with the