Manage Your Capital With The Rules of a Legendary Trader
When it comes to stock trading, money management is one of the most important factors. Jesse Livermore, one of the greatest trading legends of all time understood this. He developed his own laws for managing his investments based on the knowledge and experience that he acquired throughout his trading career. Read more to learn about these Livermore’s money management rules.
Introducing Jesse Livermore
Jesse Livermore was born in 1877 in Shrewsbury, Massachusetts. From his boyhood, Jesse was very studious and had his own dreams to become something different than a farmer like his father. He understood that in order to fulfill that dream, he needed to leave his home.
At the age of fourteen Livermore left home and made his journey to Boston. There he managed to get his first job as a chalkboard boy for Paine Webber Brokerage Office.
His intelligence, curiosity and passion for trading helped him to gain in depth knowledge about trading which he earned from his real life experience. Jesse Livermore started his trading career in the bucket shops and never had to look back. He made millions from his trades in the stock market and went through all the tests to become a trading legend.
Livermore Money Management rules
So what were those invaluable rules that Jesse Livermore followed to make millions of dollars from his trades?
Rule 1: Never invest your whole capital at one time
Jesse Livermore believed that it is simply unwise to invest the whole capital at a time. Instead he preferred to invest it in installments. According to this rule, first you need to decide the total number of stocks you are willing to buy. Then divide the purchase into several periods.
For example, if you are willing to buy 2000 stocks, according to Livermore theory you should first buy 400 stocks, then 400 more in each of the following periods and then finally buy 800 stocks. However, maintaining this ratio is not a hard and fast rule. You can pick a different ratio for your purchase.
The whole idea is to make sure that every time you are buying the stocks, you are buying it for a higher price than the pervious purchase. This way you can understand the trend of that particular stock. If you need to pay more to buy the next set of stocks then it means you are on the right track.
On the other hand while selling, follow the same rule. Never enter your positions all at once but do it over several periods. Take a close look at the price each time to determine if the trades are filled at a higher price than the last trade. If that is the case, then this is going to be a winning trade.
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Tags: Capital, Jesse Livermore, Judgment, Money management rules, Patience