Trade Like Jesse Livermore

 The Livermore Money Management System

This is a system used by Livermore that explains to the trader “when to
hold ’em and when to fold ’em.” The five rules of Livermore’s money management
are explained.
Rule 1—Use a unique probe system.
Rule 2—Never lose more than 10 percent on any trade.
Rule 3—Always keep a cash reserve.
Rule 4—Don’t sell just because you have a profit; you need a reason to
buy and to sell.
Rule 5—After experiencing a windfall profit put half the profit in the
bank.

Livermore believed emotional control to

be perhaps the most difficult thing for a trader to master. Often, a successful

trader has the biggest battles within himself, in following his own

rules. Livermore’s rules for emotional control are explained in detail in

this book. A quick summary follows:

1. • Learn from your mistakes: Keep notes and analyze every trade.
2. • Preparation: Livermore had a daily regime, almost a trading ritual.
3. • His Special Office Arrangement: Keep strict office rules such as no
4. talking after opening bell.
5. • Masterminding the media: Be suspicious of the news media—read between
6. the lines.
7. • Cut losses/control emotions: A TRADER MUST LEARN AND PRACTICE
8. EMOTIONAL CONTROL.
9. • Let the winners ride: Don’t dump a winning trade.
10. • Follow your own rules.
11. • Beware of stock tips: Never take stock tips under any circumstances.