Source: Kigaku Club

The revolutionary trading methods of the major player Livermore are still in use today.

Trading actually has only two actions: buy and sell. Every trader wants to be able to accurately grasp the buying and selling positions. In this regard, the key point trading method of big players can give us some help and enlightenment.

I. Definition of key points

What are the key points? The definition of a big player is: when guidelines send a signal, it indicates the psychological timing for the market to start.

“I chose a critical psychological moment to invest in my first trade — the moment when the current market movement is so strong that it will continue to rush forward frankly. The reason this stock continues to rush forward is not because of my actions, but because the power behind it is so strong that it has to rush forward, and it is indeed rushing forward.”

According to Jesse Livermore, the key point is the dividing line between strong and weak price trends. What is above the key point is strong, and below the key point is weak. For example, in the beginning, it used important integer prices of stocks as key points, such as 50 yuan, 100 yuan, 200 yuan, etc. When the price breaks through these integer prices, it is a sign of price strengthening. All you need to do is wait patiently until the price breaks through these prices. Of course, if the price does not continue to rise after the breakthrough, but falls below these key integer prices, then it is a weak performance.

Later, with changes in market conditions, the selection of key points was extended to the highest point and lowest point of a certain stock within the past year or two, focusing on breakthroughs between high and low points during market volume.

If you want to trade successfully, the only market signal you need is to wait for the “critical point” to be broken through. An investor must be patient because it takes time for a stock (or a certain variety) to follow its own logic to complete a normal market, and it also takes time to break through a certain key point.” So, this “time parameter” is very important!

Livermore attaches great importance to breakthroughs at key points. It only participates in the market after the breakthrough, but it must wait until the breakthrough is confirmed before entering the market. If you participate too early, or if you participate without confirmation, you will often lose money. He believes that breaking through key points will also take time, and that it is necessary to wait for confirmation before participating.

II. Illustration of key points

Figure 1 shows that the contract broke through the upper boundary line of the recent consolidation area in combination with transaction volume. After breaking through, the normal trend is to continue upward. If it returns, it indicates that it is not normal, and if it is not normal (Figure 2), then avoid it first.

If this appears later, it will follow, indicating that the trend is still good (as shown in Figure 3). This is Livermore's key point technology.

The above is just one example. The editor believes that the key points are not fixed; traders should define them according to their own rules. For example, some people will use the general market integer point as the key point, some will use a certain indicator as the key point, some will use Soros's “reflection point” as the key point, etc. The truth is the same; it is impossible to determine death in one word.

The success of big players did not just rely on this simple key point, but complete trading rules formed on this basis, such as sector leaders, pyramid strategies, etc., and a grasp of time factors. Although there may not have been a concept of a trading system at the time, Jesse Livermore can probably be called the originator of trading breakthroughs in systematic trading laws.

III. Some additional rules for big players

1. Making a lot of money does not depend on individual stock price fluctuations, but on major fluctuations. In other words, it does not rely on dissolution, but on evaluating the overall market and market trends.It's rare for people to be able to make correct judgments and stick to it at the same time. Livermore discovered that this was one of the hardest things to learn. However, a stock trader can only make a lot of money if he really understands this.

2. The essence of Livermore's trading system is based on studying general market trends.You must wait until the market rises before you start buying, or when the market falls, before you start going blank.

Livermore said that the strongest and truest friend in the world is the general market trend. When the market is uncertain or fluctuates up and down, Livermore always stays on the sidelines. Livermore has spared no effort in repeating these principles over and over again: wishful thinking must be completely eliminated; if you don't miss every trading day and speculate every day, you won't be able to succeed; there are only a few opportunities you can count every year, probably only four or five. Only at these times can you allow yourself to exit the market and open positions; in a time other than these, you should let the market gradually prepare for the next major movement.

3. When operating, you must follow the leader; there is no need to consider where other stocks will go.Your focus should be on leading industries and leading stocks in strong industries.

An important characteristic of leading stocks is that they break through resistance zones and take the lead in creating new highs. Keep your mind flexible and remember that today's leaders may not be the leaders two years from now.

Just as the fashion for women's clothes, hats, and man-made jewelry always changes over time, the stock market is also constantly abandoning past leaders, and new leaders have taken the place of old leaders.

The leading stock in the previous bull market is unlikely to become the leading stock in the new bull market. This is quite reasonable, because changes in economic and commercial conditions will generate new trading opportunities with greater anticipated profits.

4. Resolutely implement stop-loss rules.Livermore kept his initial loss to less than 10%. Livermore said that the only option to ensure the continuation of the speculative business is to carefully guard one's capital account and never allow losses to be large enough to threaten future operations, so there is no fear of running out of firewood.

5. Resolutely implement the upward pyramid buying principle.Remember, stocks are never too high, too high to prevent you from starting to buy, or too low to start selling. But after the first trade, don't make the second one unless the first one makes a profit.

Livermore said that if your first trade is already in a losing position, don't keep up with the times and never reduce your losing positions. Be sure to engrave this thought deeply in your head. Continue to buy more shares only if the stock price continues to rise. If it is a downtrend, the stock price will only increase all the way up if it is in line with the expected downward trend.

6. Avoid buying low-priced stocks.Large profits are made from large price fluctuations, and it usually doesn't come from low-priced stocks.

edit/lambor