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Jesse Livermore: Trading Rules and Strategies


  1. Buy rising stocks and sell falling stocks: One of the cardinal rules of stock trading is to buy stocks that are on the rise and sell those that are falling. By identifying stocks with upward momentum and avoiding declining stocks, you increase the probability of capturing profits and minimizing losses.
  2. Do not trade every day of every year: Active trading on a daily basis can be exhausting and counterproductive. It is essential to exercise patience and restraint in stock trading. Avoid the temptation to make impulsive trades and focus on high-quality opportunities that align with your trading strategy.
  3. Trade only when the market is clearly bullish or bearish: Successful traders recognize the importance of assessing market conditions. Trade when the market is clearly showing bullish or bearish tendencies, as it is during these periods that trends are more pronounced and can provide favorable trading opportunities.
  4. Trade in the direction of the general market: The broader market direction significantly impacts individual stock performance. To increase your chances of success, align your trades with the general market trend. If the market is rising, adopt a long position, and if it is falling, consider short positions.
  5. Co-ordinate your trading activity with pivot points: Pivot points, which are technical indicators that identify potential turning points in the market, can be valuable tools for traders. By aligning your trading decisions with pivot points, you can enhance your timing and identify optimal entry and exit points.
  6. Only enter a trade after the market confirms your opinion: Avoid making premature trades based on personal opinions or speculative assumptions. Instead, wait for the market to validate your analysis or strategy before entering a trade. This confirmation reduces the likelihood of entering positions that are counter to market dynamics.
  7. Continue with profitable trades, end unprofitable ones: A cardinal rule in stock trading is to let your profits run and cut your losses short. If a trade shows a profit, allow it to continue until the market suggests an exit point. Conversely, if a trade shows a loss, promptly exit the position to limit potential damage to your portfolio.
  8. Never average losses: Averaging losses, where an investor buys more shares of a falling stock to reduce the average cost, can be a dangerous practice. Instead, it is crucial to accept and address losses promptly, adhering to risk management principles to protect your trading capital.
  9. Go long at new highs, sell short at new lows: When stocks break out to new highs or lows, it often indicates the beginning of a new trend. Going long at new highs and selling short at new lows allows you to capitalize on the momentum of these breakout moves.