Jesse Livermore - Market Key

Quote from Hook N. Sinker:

This is an example of the kind of results that I observe when I simulate trading using scaling and non scaling systems:

I use Penney (J.C.) Company (stock symbol JCP) daily closing stock prices adjusted for splits and dividends, 36.90 years from 4 January 1982 to 26 December 2008 in these simulations.

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Scaling (adding another position) every 5 % price increase, sell when prices decrease 10 %, maximum 5 lots, risk associated with each lot represents 0.5 % of account equity, long positions only, initial capital $ 100,000, 0.5 % slippage and assuming $ 10 commission per transaction.

Profit after subtracting $ 10.00 commission & slippage per transaction: $ 355941
Greatest draw down is 0.0671 (6.71 per cent).
Cumulative Annual Growth Rate (CAGR) is 13.20 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 5.79 per cent.

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Without scaling. Same system as above except initial position uses 2.5 % risk and trades single entry, single exit:

Profit after subtracting $ 10.00 commission & slippage per transaction: $ 436809
Greatest draw down is 0.0100 (1.00 per cent).
Cumulative Annual Growth Rate (CAGR) is 16.20 per cent.
Annually Compounding Annual Growth Rate (ACAGR) is 6.43 per cent.

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I consider these two systems to show about the same performance.

Perhaps Jesse Livermore uses scaling as a technique to keep him trading in the profitable direction. In my copy of "How To Trade In Stocks". chapter 6, page 52, I read "By following this rule you will come nearer being on the right side than by any other method with which I am familiar".
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Hook N. Sinker,


WOWA!!!!!!! Once again.

Nice work!

First I would like to thank you for responding to the version of Mr. Livermore’s – “How to Trade in Stocks” that you have read and refer to..

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I would like to respond to more of what you have presented as well as the incredible material and traders that have posted here recently – this thread has obviously taken on a life of its own - this of course is totally awesome - amazing - kudos to all of you that travel through here.

I shall follow up on some of these excellent posts later when I get the opportunity.

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The fact that you are writing trading programs and back testing them is exciting to me more than most people can imagine.

I would like to make a couple suggestions for you to try with your simulation testing.

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1. Mr. Livermore primarily traded the leading market stock companies. So I recommend using for sakes of testing a leading Dow Jones Company like say “Walmart” as a comparable Consumer – non cyclical stock company.


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2. In your "Scaling System" referenced above you add to your position "with every 5% price increase" – it seems to me to much of a long stroke getting into the market..

I suggest (if you are able) to add to your position - scale - "with every $1 price increase" in the stock.

This was the value of price change I referenced in responding to your scaling question earlier on this Thread on 12-27-08 – located on page 9.


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3. With the "scaling method" maybe a "trailing stop loss" could also be put in place initially as the trade is developing.

A. An idea for a "Trailing Stop" would be a 10% Trailing Stop Loss on the initial trade amount – represented as a fixed dollar amount (not a percentage).

B. And then this “Trailing Stop” turns to a “Stop Loss” when the price (plus slippage and commission) reaches two hundred fifty dollars($250)’net’ profit - at this time a “Stop Loss” could be put in place at break even plus a ‘net’ one hundred ($100) profit.

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I do not know what you systems are using for entry and exit signals – so I can not comment in these regards - are you using Mr. Livermore’s method for these?

I am curious how these three (03) ideas referenced above would affect your already remarkable results.

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If you do not mind me asking, what platform are you writing your trading programs on?

Keep up the great work and good luck with your trading endeavors.
 
DO YOU GUYS KNOW IF JESSE IS SAYING TO CHECK THE UPTREND/DOWNTREND RECORD PRICES OF THE PRIOR PIVTOL POINTS?

I MEAN WHEN YOU HAVE A PRICE RECORDED IN THE UPTREND, AND THE NEXT PRICE REACTS 3% THAT WOULD BE FROM THE LAST PIVITOL OR PRIOR PIVITOL POINT THAT NEEDS TO BE CONFIRM.

WHO KNOWS HOW HIS SYSTEM WORKS ON PIVITOL POINTS?
 
Just wanted to clear a few things up.

Firstly, a $6 move in a $30 stock is not 20% it is $6. If you get this wrong you are making a HUGE mistake. His key doesn't work the same if you convert the price moves into percentages.

Secondy, I believe you use the extreme price of each day not the close.

Thirdly, a post near the beginning of this thread suggested that the key was a red herring by Livermore. This post and the poster is very, very wrong.

Follow the rules and this thing will blow you away and will allow you to achieve what he did.

Unfortunately the key works so well that one becomes enamoured by winners and eventually has to face battling their ego. This is a major problem.
 
Quote from nazzdack:

I don't know any subtle way to break this news to you but the book you're referring to was meant to be a cruel "joke". Livermore didn't mean to reveal anything of value in it. It's a bunch of mathematical jibberish. Considering the number of times Livermore went from rags-to-riches-back to-rags, he didn't practice what he preached and/or he never really knew what he was doing to begin with.
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He never knew what he was doing? Wow.

You are such a clown. You are criticizing a trader that supposedly made $250,000,000 in 1929!

(I'm sure you are a better trader than Mr. Livermore)
 
Here's a crazy thought: Actually read the books and figure it out yourself.

This might cut into your t.v. time, so be forewarned.
 
Quote from gnome:

In spite of many ET wannabes who contend/hope that certain traders can consistently cream the market.... the fact is that the huge majority of trading decisions are 50-50 in probability of working out.

And over a long time, it's difficult to be consistently on the winning side of a 50-50 proposition regardless of how clever you believe yourself to be.
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...for someone w/ 10,000 posts, you don't have a handle on what it's all about. 50-50??

Even, for the sake of argument, if every trade only had a 50-50 chance of success --- you make money (obviously) when your winners total more than your losers.

I'm sure this is posted 100's of times here (I haven't actually logged in in ages), but being correct half the time can be a very profitable proposition.

gd
 
By the way, regardless of Jesse's demons, he really did have an understanding of the markets.

"Reminiscences" is an all-time classic.
 
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