This should be an interesting read

I don't have a large enough sample to make any definitive comment, but the rule-breaking tended toward exit. This of course is highly related to bias toward the direction and ultimate "target" of the move, which is also tied up with ego.
 
I don't know any traders personally, but that would have been my guess. Breaking rules for entry doesn't necessarily have to be individually expensive, particularly if starting with "probes," as JL did, wherein he tested his premise before putting on a full position. At least if exited quickly enough, a few such rogue trades can be a valuable learning experience worth the tuition.

But being too loose with exits, a trader can quickly find himself looking into the abyss. And that's a scary place to be. I've been there in my early days and now, if anything, I may be a bit too quick to exit if a trade isn't acting right almost immediately upon entry. Although less that ideal, I'd rather err on the side of caution and keep those pills small and "swallowable." It helps keep things less...personal.
 
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dbphoenix said:
I don't have a large enough sample to make any definitive comment, but the rule-breaking tended toward exit. This of course is highly related to bias toward the direction and ultimate "target" of the move, which is also tied up with ego.
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Adding to what I wrote in my preceding post, and building on what you wrote, the longer the term of the directional bias, perhaps the more pesky that unbiased protective stops appear. And so they are promptly disregarded when they get in the way because of the trader's unyielding adherence to the "big picture." (Of course, the trader can exit and then re-enter, but that's not what we're talking about here.)

This ties in my earlier observation that JL appeared to run into trouble when his trading horizon lengthened. So while ego was almost certainly at play here, it may have been further aggravated by the length of the time horizon, thereby creating disproportionate risk. Of course, that may just be my own bias talking.:)
 
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Keeping one's focus on the horizon doesn't prevent him from stepping into or falling into a hole. One of Wyckoff's major contributions was his approach to monitoring trend every step of the way rather than focus on some ultimate price objective. If one husbands the progress, the trend will take care of itself.
 
dbphoenix said:
Keeping one's focus on the horizon doesn't prevent him from stepping into or falling into a hole. One of Wyckoff's major contributions was his approach to monitoring trend every step of the way rather than focus on some ultimate price objective. If one husbands the progress, the trend will take care of itself.
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I agree. We must account for the potholes along the way.

In my earlier observations regarding the role of time frame as a possible reason for JL's disproportionate losses, I may have overlooked a critical consideration. Size. Earlier I had mentioned Toppel's reference to small pills being easier to swallow. In fact, he had been talking about increasing trading size too quickly, with the ego not being able to adjust in concert. In his book, he discusses how we can more readily adjust to gradual increases in trade size than to large increases in a short period of time.

Jesse Livermore, of course, increased his trade size very quickly. And while it appeared that he adapted for a time, the kinds of losses he subsequently suffered went beyond mere scale. Toppel wrote how our egos swell in proportion to the size of risk we assume and that the pain of being wrong seems to increase exponentially in relation to trade size. (I can vouch for that.) He went on to point out that "our sense of self is enhanced by size, be it in trading large numbers, living in a big house, driving a big car or owning a big boat." (Sound familiar?)

Toppel: Egos often will deny the reality of their inability to function at a higher risk level. They will tell us that they have it under control this time and that they are strong enough to do well at a greater trading size.

For the most part, Livermore's composure was remarkably impressive in the face of such large and fast increases in trade size. For a time.

So perhaps I got it wrong, or at best partly right, when I referred to time horizon as an important contributing factor.
 
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One of his most-quoted utterances had to do with "sitting tight". If one is going to sit tight, however, he has to have some sort of bias with regard to direction if not to ultimate goal. Dow and Wyckoff, among others, couldn't care less about bias; they let the market tell them what to do. If the market said get out, they got out. If it said get back in, they did so. Trading without bias goes a long way toward removing ego from the picture.
 
I think the "sitting" reference related more to holding on to a winning position. Livermore said that traders who can be right and sit tight were uncommon. It's hard to disagree. I often find myself exiting too early. Of course there is a marked distinction between sitting tight while a trade is going your way and doing so when a trade is going against you.

Livermore had said that there is only one side to the market. Not the bull side or the bear side, but the right side. So he was aware of the error of bias and it served him well when he abided by this principle.
 
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However, the "holding on to a winning position" is where ego affects the perception of whether or not the position is in fact "winning". People don't hold on to losing positions because they've recognized that it's a losing position and want to hold on anyway. Rather they refuse to acknowledge the fact that it's a losing position. One can find examples of this here every day.
 
Fair enough. But please keep in mind that JL's approach, once he refined it, was to "probe" a market, by placing a small trade and only adding to it if it went in his favor. If the first probe went against him, then he would quickly exit and wait for his timing criteria to tell him when to try again. I think it's hard to criticize such an approach.

I've read Reminiscences not less than four times, including the annotated version, and I never got the impression that when he was talking about his general trading principles that they included wishful thinking. So I'm inclined to believe that the sitting tight comment referred to a position that was profitable and presumably heading in the right direction.

But clearly he strayed from these general principles that served him so well. I think the man was a genius, but flawed.
 
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