The discretionary is based on economic analysis and Livermore’s trading rules

The mechanical is pure TA, based on trend following principles and takes no account of FA.

Do you run your mechanical system parallel to your discretionary ideas? i.e. you take mechanic signals on instruments and place speculative bets using T/A and F/A separately

Or (and this is what I’m thinking) you integrate both, so you will look for confluence with your tape reading / T.A / and mechanic system?

if everything holds then this can turn into a long-term holding with a discretionary exit.

Initially I had read a few books and thought I would be able to grow my money as a fundamental investor. (In Jesse’s words, which I didn’t read until later, I would have been a semi-sucker with hints of beginning sucker.)

I didn’t so much have to achieve confidence - I had too much of it - misplaced unfortunately.

You’ll see from one or two of my posts that I didn’t do very well at fundamental investing so I began paying more attention to the price trend which stopped me losing money and went on from there. Losing money does tend to bring down your confidence levels and it did mine.

Rather than confidence, I try to think in terms of rational decisions and irrational decisions - to keep my trading as unemotional as I can. I consciously make an effort to treat each trade as a data gathering experiment as opposed to a money gathering endeavor. I stop the experiment (get out of the trade) if the numbers go too far in one direction and continue it otherwise. I talk very little about my trading. It’s between my computer and me. These actions reduce the pressure I feel from trading and, if I’m under less pressure, I suppose you could say it improves my confidence. However much I try to make myself trade with all the emotional involvement of Mr Spock, a series of drawdowns easily undermines confidence. Money management keeps the losses lower than they would be otherwise and then it’s important to remind myself that I’m using tested, rational methods that should, on average, take money out of the markets. I wrote a little about how I test rational trading methods in my How I Try not to be a Fool post:

http://www.jesse-livermore.com/blog/how-i-try-not-to-be-a-fool/

As I understand, you trade professionally now. How long did it take you to get there? To achieve profitability, and confidence.

You’re right - it’s mechanical/formula trading that I prefer not to talk about. Longer term trades made on the basis of economics - such as oil - I’m happy to talk about more freely.

What I said on my “about” page is:

————————————-
Trading:
My trading is discretionary, based on economic analysis and Livermore’s trading rules, especially:

* Buy rising stocks and sell falling stocks.

* Trade only when the market (or individual stock) is clearly bullish or bearish.

* Only enter a trade after the action of the market confirms your opinion.

* Continue with trades that show you a profit, end trades that show a loss.

* End trades when it is clear that the trend you are profiting from is over.

* Never average losses by, for example, buying more of a stock that has fallen.

* Never meet a margin call - get out of the trade.

More than that I won’t say because some parts of my trading strategy – possibly the elements that give it an edge – have been hard won and are not well-known.

Future Trading:

I’m experimenting with mechanical trading models with the aim of:

* Providing excellent profitability under normal market conditions.

* Lowering risk when markets are under extreme stress. (In case you’re wondering how this could be done: if you’re trading stocks you could do it by, for example, holding a short position in a downtrending stock for every long position in an uptrending stock. In the event of a catastrophic, market-wide price shift, the gains on the short positions should balance the losses on the long positions.)

———————————–

He seemed to have a top-down type of strategy (soros, druckenmiller etc) but with a good sense for the core leaders in equities too.

Livermore started off beating the bucket shops honestly - according to Reminiscences of a Stock Operator - using his price-based trading methods. It was only after they started cheating him that he retaliated by stinging them.

Your new understanding is the same as my understanding and Livermore would unload his NYSE position after the bucket shop trade was over.

In terms of the risk Livermore ran of having to sell below his buy price, it was indeed a risk - but a small risk. I imagine Livermore would have chosen stocks whose daily volumes were normally very small. He would act quickly and as long as the bucket shops didn’t know what he was doing, and countered it by trading on the NYSE themselves, he was relatively safe.