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Date Posted: 04:04:50 06/28/03 Sat
Author: peter wong
Subject: Re: notes on Jessy Livermore's Trading Guidelines
In reply to: peter wong 's message, "notes on Jessy Livermore's Trading Guidelines" on 03:11:29 06/28/03 Sat

Money-Management Rules

Establish stops! You should have a clear target price at which to sell if the stock moves against you. And you must obey your rules! Never sustain a loss of more than 10 percent of your invested capital. Losses can be twice as expensive to make up ¡V if you lose 50 percent, you must gain 100 percent to get even (see Table). This is also a key timing rule.

Never meet a margin call, and never average down in your buying.

Turn paper profits into real money periodically. Take a percentage of your winnings and put them in a safe place, like the bank, or bonds, or an annuity. Cash was, is, and always will be king. Always have cash in reserve. Cash is your ammunition. Livermore¡¦s biggest mistake was not following this rule more often.

Examine and understand the dimension of time: Time is not money, because there may be times when your money should be inactive. Time is time, and money is money. The successful investor is not invested in the market all the time. There are many times when you should be completely in cash. Often, money that is just sitting can later be moved into the right direction once it has revealed itself. If you are unsure of the direction of the market, then stay out, and wait for a confirmation of the next move. This is how to make a fortune. Patience, patience, patience is the key to success. Don¡¦t be in a hurry.

Take home winnings off the table after the completion of a successful trade.

Use probes to establish your full position. After an initial probe, do not make a second move until the first probe shows you a profit. Do not establish your full position all at once ¡V wait until your first trades, your early probes, have show you a profit, then go ahead and fill out your full position.

To be precise: First establish 20 percent of your planned position on the first purchase, 20 percent on the second, and 20 percent on the third. Wait for the confirmation of your judgment, then make your final purchase of 40 percent.

Each of these purchases, or probes, is a crucial factor in establishing your overall position. If at any time the stock moves against you, close out all your positions, never sustaining a loss of more than 10 percent of invested capital.

Sell the losers; let the winners ride, provided all the factors are positive.

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Replies:

  • Re: notes on Jessy Livermore's Trading Guidelines -- peter wong, 05:40:26 06/28/03 Sat
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