4 Trading Rules Everyone Should Know #72

Market Meditations | January 12, 2021

In today’s letter, we explore lessons from Jesse Livermore. A trader who experienced the very best and worst of the markets.

Dear Meditators

Crypto markets can be rewarding but they can also be punishing.

Today’s letter prepares you for every scenario by exploring 4 trading rules from Jesse Livermore.

Livermore is amongst the world’s greatest traders. His brilliant but tragic tale provides us with timeless insights. So let’s dive.

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Jesse Livermore: The Best and Worst of Trading

When it comes to the role models and sources of inspiration of the world’s greatest traders, few people are cited more than Jesse Livermore.

Livermore’s tale is a brilliant and simultaneously tragic one. 

Livermore famously shorted the 1929 market crash (otherwise known as The Great Depression), building a fortune of $100 million

To put that into context for you, that is the equivalent of $1.5 billion in today’s money ? By 1934, Livermore lost his money and tragically took his own life in 1940.

Therein lies why Livermore is so fascinating to study for traders. It is the complete polarity of his trading successes.

  • On the one hand, Livermore is amongst a handful of people in the world who have scaled the absolute heights of success in trading. 

  • On the other hand, his story is a powerful reminder of how quickly things can go wrong if you don’t remain cautious of the markets and allow complacency to creep in.

Fortunately for us when it comes to studying his successes, Livermore left behind some trading rules. And of course, the failure to follow these rules led to his losses.

In today’s letter, we elaborate on a few of our favourites.

For those who wish to venture further, you can read Livermore’s own book: How to Trade Stocks ?

What’s more, if you are keen to learn more about his life and experiences, check out Reminiscences of a Stock Operator ? by Edmin Lefere.

Do Not Trade Everyday of the Year

This statement from Livermore is especially relevant to the current markets we are trading and also particularly important to any new traders in the space. 

If you are new to our community, welcome

As was the case a century ago when Livermore was trading, newcomers are very eager to trade to be active in the market ⏰ Many people fall victim to over-trading.

Whether it is calling bitcoin tops and bottoms or trying to pick the next altcoin that will rally, chances are you are looking for trades all the time

It is important for all traders to remember that you don’t need to trade everyday.

We would even like to take that a step further, to say that it is even better not to trade a lot of times ?

We must all learn not to force trades and to only pick the trades that have the best likelihood to make us money. 

For the majority of people, a simple buy and hold strategy, especially in the current crypto market conditions, may be advisable. 

The trades that don’t have the best odds, will cost you time, stress and will never be the trades that make you big money

Only Enter a Trade After the Action of the Market Confirms Your Opinion and Then Enter Promptly

Our regular readers will be used to us saying this: having a tested trading strategy.

Before ever making a trade you need to have your trade plan ready.

A trading plan does not only consist of your technical or fundamental reasons for entering a trade. 

In fact, your specific reasons for entering a trade are the least important part. 80% of trading is founded in managing your risk and psychology.

If you don’t know where to start check out our ? risk management course. Do you want us to make a psychology course in the future? Let us know in the comments.

The key is being thorough in your research and not rushing into your trade

Whatever your thesis, let the market confirm it and wait for the trade to expose itself to you.

Once your trade has come alive in the market, the most important thing is to be aware of all the changes that may render your plan worthless

Be prepared to sell your position when the market changes direction

When your confirmation is no longer there you are left with but one option and that is to close your position. 

Close it confidently, logically and unapologetically. 

“In Any Sector, Trade the Leading Stock – The One Showing the Strongest Trend” 

It is almost eerie how relevant this next pearl of wisdom from Livermore is for crypto traders today. 

It’s a very simple thesis and it applies to both Bitcoin and altcoins: the leading asset in a sector simply will give you the best chances of success ?

Having a position in the leading asset may well be more manageable than multiple smaller assets, interesting as they might look to trade. 

Traders can end up with multiple positions in multiple assets due to FOMO. As your watch list grows it becomes harder to keep an eye on all of them. 

The consequences?

  1. Not being able to create a solid plan for any of them.

  2. The opportunity cost of sitting in stagnant positions. You never know when a coin will catch up to the market, so you could be stuck in positions a long time.

  3. Over diversify and you risk sacrificing returns. Confidently picking a select few assets will perform much better than trying to catch them all.

  4. You never master an asset. If you never dedicate yourself to an asset you will never truly learn the intricacies, ebbs and flows of that asset. This can translate to an enormous edge over time.

“The Human Side of Every Person is the Greatest Enemy of the Average Investor or Speculator”

This next quote is so clear and yet so overlooked by most traders.

The technical side of trading is simple to understand and learn. We have a full ? technical analysis course for beginners and there are no shortage of other resources. 

What’s difficult is applying trading rules. That’s when emotions enter the stage. 

Emotions make it difficult to stick to even the most meticulous trading plans. 

There is no sense in trying to argue with the markets and yet many of us always seem to. When the market is showing you something contrary to your trading strategy, you need to get out of your trade.

You can’t have a discussion with the market. Opinions can be wrong but markets are never wrong ?

Don’t try to fight it. There shouldn’t be wishful thinking in trading. Hope is not a strategy and it certainly won’t make you money. 

Revenge trading, holding on to losers, FOMO and FUD are common psychological pitfalls traders fall victim to.

Mastery over your emotions is essential for successful trading. That’s why we are committed to delivering our 2 free education and self improvement letters each week. 


The fact that Livermore’s lessons are so relevant today is a powerful reminder of how human nature repeats itself. 

The rules of the market are the same because we are the same. 

Perhaps, by taking a few of the greatest traders in the world and studying them (such as we have done today with Livermore), we can make a deliberate attempt to change our behaviour. 

Let us not fall into the trap of repeating the same mistakes. Let us learn from our mistakes, others’ mistakes and get closer and closer to achieve our trading goals.

? If you’re serious about trading and investing, consider joining our premium community and gaining access to the full range of insights and analysis ?

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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.