Flushed with a string of successes on the markets in the last couple of years, I thought it was about time that I got myself a new copy of Reminiscences of a Stock Operator. I splashed out on the hardback version (first published in 2005) which includes the “classic artwork as it appeared in the Saturday Evening Post” in the 1920s. I haven’t been disappointed.

It’s physically a big book - about 9 x 11 inches. This means the artwork can be reproduced without loss of detail. You can click on the image of the bear above to get more detail. This cartoon is one of my favorites, showing a starving bear emerging from hibernation. (Livermore had a reputation as a perennial bear. Although the reputation isn’t wholly justified, his biggest triumphs tended to be on the short side of the market.) There are several other equally good cartoons throughout the book, none of which fails to raise a smile. I’ve not reproduced my number 1 favorite cartoon here though. If you get a copy of the book yourself, you can guess which one it might be.

Each of the 12 chapters of this new edition features an introduction from Charles Geisst, the financial historian. These are worthwhile additions, setting Livermore’s activities in their historical context. Details of trading in Livermore’s time - such as the legality of insider dealing (it was legal and rife) and the role of bucket shops are also set out to help new readers.

If you haven’t yet bought Reminiscences of a Stock Operator, and you’re happy to buy a larger sized book, this edition is definitely the one I’d recommend.

While I was reviewing my finances earlier this evening, I got to wonder what Jesse Livermore would be doing if he were alive today. Would he be using the trading strategies that worked for him in the first part of the 20th century? Would he be trading stocks and commodities? Or would he be trading options or CFDs or some other derivative?

The answer to the first question is, I think, straightforward. Livermore’s opinion was that:

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again”.

Today’s speculators, driven by the same emotions of greed and fear that drove their counterparts one hundred years ago, leave the same telltale traces in the price and volume action of whatever they are trading. Livermore would be looking for the familiar patterns and, when he was sure he had seen a familiar one, he would trade it.

Of course, he wouldn’t be reading a ticker tape for price and volume action; he would be reading it on his screen. It’s quite likely also that he’d be trading from home. Livermore, although sociable outside market hours, was a silent loner while trading. The prospect of sitting alone, trading quietly from his study would surely have attracted the great man. He would still be reading the numbers directly for indications of market direction. Charting was fashionable when Livermore was trading but he chose not to use it. He said he was better able to interpret prices and volumes when they came as numbers rather than plotted on a chart.

Jesse Livermore traded with high leverage. When the market moved, he wanted to ensure his gains were worthwhile. If he were going to trade stocks and commodities today, he would certainly be using high leverage methods.

The biggest commodity markets today are the forex markets. For traders of any consequence today, margin rates of 1 percent are available on the forex markets - in other words you put in $1 to buy $100 worth of currency - so I suspect Jesse would be trading the forex exchanges heavily. He liked to buy strength and sell weakness, so he would have been shorting the US dollar for some time.

In terms of the stock market, the US indices have lost their momentum at the moment, which means Jesse would be sitting on the sidelines, waiting for a breakout.

On a site dedicated to Jesse Livermore, you would expect nothing but praise for the man. There are however, significant question marks over Jesse Livermore’s trading record. He bankrupted himself more than once during his career. Then, having made one of the biggest inflation adjusted stock-market coups in history, when he shorted the markets in 1929, he had lost it all by 1934.

Reasonable observers – for the sake of argument I shall include myself in this group – would not try to claim that Livermore was a flawless trader. Livermore is, however, remembered while most of his trading contemporaries are long forgotten.

Livermore’s continuing fame arises from several significant factors:

• Livermore was a skilled reader of the now defunct ticker tape. In more modern terms, we would say that he was skilled in using price/volume data to predict where a stock’s price was heading.
• Not only did he read the tape successfully, amazingly he told the public how he did it. Trading concepts that we now call support, resistance and momentum can be cleary identified from Livermore’s work.
• In a series of interviews with Edwin Lefèvre, Livermore gave an electrifying insight into both his life as a self-made stock-market trader and his trading methods. The idea of giving up the day job and making a living on the markets is as attractive now as it was in Livermore’s day.
• Livermore stayed in the public eye when, in 1935, following a drunken argument, his ex-wife shot and injured Livermore’s oldest son Jesse Jr.
• Livermore successfully sold the idea to small time traders that they should ride their winners and sell their losers. Although many of them failed to heed his advice for psychological reasons (and continue to fail today, for the same reasons,) even the least educated of today’s traders are aware of this powerful method.
• Livermore lost one of the largest personal fortunes in history. Everything he had taken from the stock-market, he gave back. In the end, just like the bit-players, he failed to obey his own favorite rule - sell your losing trades.

Despite the question marks over his career, even today a trader can make money in the markets using Livermore’s methods. Many of today’s trading gurus – such as Martin Zweig and Alexander Elder – owe a debt to Jesse Livermore for the methods they either use or publicize. There is no other figure in the history of the markets whose methods continue to figure so strongly in market trading than Jesse Livermore’s.