Big fluctuations bring big profits! Listen to the story of a mysterious and solitary investment genius: Jesse Livermore.

Source: Qilehui

01 The market is governed by patterns, and these patterns stem from the unchanging nature of human behavior!

There is nothing new on Wall Street. There can be nothing new because speculation is as old as the hills. What happens in the stock market today has happened before and will happen again in the future, because human nature never changes.

The inability to control one's emotions is the true nemesis of a speculator. Fear and greed are always present; they reside within us and wait outside the market, ready to jump in and manifest themselves, waiting for the chance to make a big profit. Regardless of when, fundamentally, due to greed, fear, and ignorance, people always repeat their actions in the same way—this is why those numbers form patterns and trends that constantly repeat themselves.

02 Patiently wait for the truly perfect trend in the market; do not jump to conclusions or make preemptive, predictive interventions.

"Timing is everything." Buy at the right time, sell at the right time. Trading is not something that needs to be done every day. Those who think they should trade at all times overlook one condition: trading requires a reason, and that reason must be objective and appropriate. Besides figuring out how to make money, traders must also figure out how to avoid losing it. Knowing what to do is almost as important as knowing what not to do.

A stock trader must combat many costly enemies within themselves. Making big money depends on "waiting," not on wishful thinking. One must wait until all factors are in their favor. The reason predicting the market is so difficult lies in human nature, and mastering and conquering human nature is the most difficult task. Carefully choosing the timing is extremely important... Acting too hastily comes at a cost. My losses were entirely due to a lack of patience, failing to patiently wait for the right moment to support a preconceived opinion or plan. Fifteen years later, certain experiences taught me how to wait for two whole weeks, watching a stock I was very bullish on rise by 30 points, before feeling safe to buy.

One must be patient, waiting for the right key point to appear, waiting for the right trading opportunity. Patience, patience, patience—this is the secret to his success in seizing opportunities. He often said, "It's not the idea that makes money, but the waiting." All one needs to do is observe what the market is telling them and react accordingly. The answer lies within the market itself, and the challenge is correctly interpreting the presented facts. "Timing is everything." Before entering a trade, the most important thing is to determine whether the path of least resistance aligns with your trading direction. My experience is that if I don't enter the market near the starting point of a trend, I will rarely profit from that trend.

The reason is that I missed the profit reserve, which is essential for one's courage and patience. With such courage and patience, one can calmly observe market fluctuations and hold stocks without being shaken by the inevitable minor pullbacks or rebounds that occur before this trend ends. The market will promptly signal when to enter, and just as certainly, it will also signal when to exit—if you patiently wait. "Rome wasn't built in a day," and truly significant trends do not end in a single day or week. It takes time for them to complete their logical course.

On many occasions, Livermore would hold cash and wait on the sidelines until the right market conditions appeared. Much of his success lay in his ability to wait patiently with cash in hand until "the right opportunity presented itself." When the opportunity arose, with multiple favorable chances aligning with his position, only then—and only then—would he strike like a cobra, swiftly and decisively. "A key point in my later trading theory is this: trade only at critical points. As long as I have the patience to trade at these critical points, I always make money.

I also believe that the largest portion of a stock’s movement often occurs during the final two weeks or even longer of a trend. Let me emphasize again: speculators must be patient, must prepare themselves, and must wait. The definition is: the most appropriate psychological moment to execute a trade. Livermore never bought at the lowest price nor sold at the highest price. He would buy and sell at the appropriate times. "But remember, when using key points to forecast trends, if the stock does not behave as it should after surpassing a key point, that is an important danger signal requiring immediate attention. Whenever I lose patience, fail to wait for the critical point, and try to make easy profits, I inevitably lose money.

Another point to note is that near the end of a trend, a sharp increase in trading volume often signifies a genuine distribution phase, where stocks are transferred from strong hands to weak ones, from professional traders to ordinary investors. The general public tends to view the surge in volume as a sign of a healthy and active market following what they perceive as a normal adjustment—either toward a higher price or a lower one—but this notion lacks foundation.

To those who are willing to treat speculation as a serious business, let me make this clear, and I wish to reiterate emphatically: wishful thinking must be eliminated; those who speculate every day or every week will not succeed. The number of times you allow yourself to enter trades in a year should only be a few, possibly four or five. Before entering a trade, you must wait, patiently waiting until as many factors as possible are in your favor before executing the trade.

Patience can make you money. When the market becomes stagnant, stock prices essentially stall. Do not predict or estimate when or in which direction the market will move—it’s dangerous. You must wait for the market or a stock to break out. Don’t guess! Wait for the market to confirm! Don’t argue with the ticker tape. Cash was, is, and always will be king. (Cash is king; holding cash puts you in control.)

It is often those who hold cash and wait for the right moment to trade who make the big money. Patience, patience, and more patience—not speed—is the key to success. If a shrewd speculator masters this point, time becomes his best friend. Entering the market at the right time means time is not money, because sometimes, despite entering the market early, you still may not make money—time is time, and capital is capital. More frequently, funds need to wait for the right moment to enter the market to generate profits. Patience, patience, and more patience are crucial to success—never rush.

Each of us is tempted by a common weakness: we want to win every hand dealt. Naturally, we all desire to win every time. This is a universal human weakness, and to some extent, it is the greatest enemy of both investors and speculators. If left unchecked, it will ultimately lead to the collapse of speculative endeavors! There are times when one should speculate; equally certain is that there are times when one should not speculate.

Great speculators are always waiting, always patient, allowing the market to validate their judgments. Without market confirmation, neither predict nor act. Many times, like countless other speculators, I lacked the patience to wait for the inevitable. I wanted to make profits every minute of every day. I am human, susceptible to human frailties. Like all speculators, I lost patience and, consequently, sound judgment. I reversed their roles—feeling hopeful when I should have been fearful, and fearful when I should have been hopeful.

Let me repeat: when a real trend emerges, certain opportunities will arise alongside it. I firmly believe that anyone with a talent for speculation and enough patience can devise a unique method as their guiding principle—a principle that allows them to make correct decisions upon their initial entry into the market. True trends do not end the day they begin; completing a genuine trend requires time. Remember, a stock is never too high to start buying, nor too low to start selling. However, after the first trade, unless it shows a profit, don’t make a second one. Wait and observe. This is where your analytical skills come into play, enabling you to determine the right timing to begin. The success of many ventures depends on whether they are started at precisely the right moment. It took me years to understand the importance of this, and it cost me hundreds of thousands of dollars.

Correct is correct, wrong is wrong; only do what is right, and avoid compounding mistakes!

A highly talented speculator once told me: 'When I see a danger signal, I don't argue with it. I step aside! A few days later, if everything looks fine, I return. My thinking is this: if I'm walking along the railway tracks and see a train coming towards me at 60 miles per hour, I jump off the tracks to let the train pass, instead of foolishly standing still. Once it passes, I can always get back on the tracks if I wish.' This vividly illustrates a kind of speculative wisdom that has always stayed with me.

Strangely, the trouble most speculators encounter is that something within them prevents them from having the courage to close their positions when they should. They hesitate, and in their indecision, they watch as the market moves against them by many points. Clearly, the right thing to do is to be bullish in a bull market and bearish in a bear market. Sounds funny, doesn't it? But I had to deeply understand this general principle before I could see how to put it into practice. It took me a long time to learn how to trade according to these principles.

Analyzing the market is an important part of this game; starting at the right time is also crucial, and sticking to your position is equally important. However, my greatest realization is that one must study and evaluate the overall situation in order to predict future possibilities. I no longer gamble blindly, nor am I concerned with mastering operational techniques. Instead, I focus on achieving success through diligent research and clear thinking. I have also discovered that no one is immune to the risk of making foolish decisions. If someone acts foolishly in their trades, they will pay the price for their foolishness.

The market accommodates and absorbs everything; it is always correct, and following the market is the wisest choice!

My theory is: 'Behind these major trends, there is always an irresistible force.' Knowing this is sufficient. Being overly curious about all the reasons behind price movements is not beneficial. The public should always remember the essentials of stock trading: recognize where the trend is heading, ride your speculative vessel with the current, and benefit from it. Do not argue with the market, and most importantly, do not try to outsmart it.

When a stock rises, there is no need to spend energy explaining why it is rising. Continuous buying will keep the price going up. As long as the price continues to rise, with occasional natural minor pullbacks, following the upward trend is generally a relatively safe strategy. However, if after a long period of steady rise, the stock gradually begins to fall, with only occasional rebounds, it is evident that the path of least resistance has shifted from upward to downward. That is the situation—why seek explanations? There may be good reasons for the decline, but only a few people know them. These individuals either keep the reasons secret or, conversely, tell the public that the stock is cheap. That’s the nature of the game, and the public should understand that those who know the inside information will not reveal the truth.

The simple fact is that market movements always change first, followed by economic news. Markets do not react to economic news; they are alive and reflect the future. Therefore, trying to predict stock market trends based on current economic news and events is extremely foolish. Both greed and fear distort rationality. The stock market speaks only of facts, reality, and reason—it is never wrong. What is wrong are the traders.

Losses are the cost of trading; failure is not terrible, but what is terrible is not learning enough lessons from failure!

No matter how experienced a trader is, the possibility of making mistakes and incurring losses always exists because speculation can never be 100% safe. Experience means having more lessons, often painful and embarrassing ones. Without pain, one cannot remember; without pain, one will not reflect. That’s the way things are. It’s normal for a person to make mistakes, but if they fail to learn from them, that truly is regrettable.

There is nothing in the world that teaches you what not to do better than losing everything. Once you know what not to do to avoid losing money, you begin to learn what to do to win. If someone told me my method wouldn't work, I would still test it thoroughly to be sure, because the only thing that convinces me I am wrong is losing money. I know that one day I will find my mistakes and stop making them. Only when I make money am I right—this is speculation.

06 Trading is a battle between rationality and emotion!

Trading requires a rational plan. I realized long ago that the stock market is never dull. It is designed to fool most people most of the time. The two main emotions in the stock market are greed and fear—often arising from ignorance. I believe that the inability to control one's emotions is the true nemesis of a speculator. Greed and fear are always present, lurking within us, waiting outside the market to jump in and perform, waiting for the chance to make a big profit. Hope is crucial for human survival, but hope, along with its cousins in the stock market—ignorance, greed, fear, and distorted logic—is the same. Hope conceals facts, while the stock market only respects facts. The outcome is objective and final, like nature—it cannot be changed. Also, always remember, you can win one horse race, but you cannot win all horse races. You can make money on one stock, but you won’t always make money from Wall Street—no one can.

Greed, fear, impatience, ignorance, and hope—all these exhaust a speculator. After a few failures and disasters, investors may become demoralized, depressed, and despondent, abandoning the market and the opportunities it offers to make money. The greatest issue a speculator must control is their emotions. Remember, the stock market is not driven by reason, logic, or purely economic factors; it is driven by human nature, which never changes. It will not change because it is our nature.

The main enemy of a speculator always comes from within. Human nature is inseparable from hope and fear. When speculating, if the market moves against you, you hope every day will be the last—and if you don’t heed this hope, you may lose more than you should—a feeling as strong as the ambitions of great founding figures and territorial expansionists. When the market moves in your favor, you fear that tomorrow will take away all your profits, so you exit—too soon. Fear prevents you from earning what you could have earned.

A successful trader must overcome these two deeply ingrained instincts. They must alter what might be called natural impulses. When they should feel hope, they must feel fear, and when they should feel fear, they must feel hope. They must fear that their losses may grow larger and hope that their profits may increase. Gambling on stocks in the way ordinary people do is absolutely wrong.

Remember, if an investor lacks discipline, a clear strategy, and a simple, actionable plan, they will fall into an emotional trap. A speculator without a plan is like a general without a strategy or a feasible battle plan. A speculator without a clear plan can only speculate, speculate, and speculate again, until one day they unfortunately 'fall off their horse' and suffer total defeat in the stock market. In reality, even in the busiest days of businesspeople, there is no plan to handle the most important matters. It’s like a general on the battlefield whose soldiers’ lives depend on his meticulous planning and execution. In the stock market, there is no room for error or carelessness.

06 Control your trading, manage your funds

Never make any trade unless you know it is financially safe. Why do inexperienced speculators often pay too much for each position?

Because everyone wants to trade. Paying too much for each trade goes against human nature. Everyone wants to buy at the lowest price and sell at the highest price. Stay calm, don’t argue with facts, don’t hold onto hope when there is none, and don’t argue with the ticker tape, because the ticker tape is always right—in speculation, there is no place for hope, no place for guessing, no place for fear, no place for greed, and no place for emotions.

Finally, speculators should purchase stocks in several installments, buying only a certain proportion each time.

If I buy a stock that I am optimistic about under certain circumstances, but it does not perform as I had hoped, that is sufficient evidence for me to sell the stock. If the stock rises later, I do not blame myself, nor do I have any painful thoughts. I later developed my own theory through practical operations, which emphasizes the critical role of capital utilization time in stock market trading. For speculators managing their own funds, the desire to 'always win' is their greatest enemy, ultimately leading to disaster.

The investor's greatest enemy is not the market or anything else, but the investor themselves. Only large fluctuations can make you substantial profits!

Let me tell you this: My ideas have never made big money for me; it has always been my patience that has earned me significant profits. Do you understand? It’s my patience! Correctly predicting the market is not at all surprising. I know many people who have made correct judgments at the right time, and when they started buying or selling, the price was exactly at the level where maximum profit should be realized. Their experiences are all the same as mine—meaning, they did not earn real money from it. It is rare to find someone who can both predict correctly and patiently wait, and I discovered that this is one of the hardest things to learn. However, only after a stock trader truly understands this point can he make substantial profits. The reason is that a person may see clearly and definitively, yet when the market moves calmly and prepares to go in the direction he believes it will inevitably take, he becomes impatient or doubtful. This is why so many people on Wall Street, who are far from being fools or even third-rate fools, still lose money. The market did not defeat them; they defeated themselves because, despite having intelligence, they could not wait patiently.

I began to realize that to make big money, one must profit from major fluctuations. Regardless of what factors might trigger the start of a major fluctuation, the fact remains that such fluctuations can continue not because of insider group manipulation or the skills of financiers, but due to fundamental conditions. No matter who opposes it, a major fluctuation will undoubtedly move swiftly toward its conclusion, driven by the underlying forces behind it.

Ignoring major fluctuations and trying to jump in and out quickly has been fatal to me. No one can capture every rise and fall. In a bull market, your strategy should be to buy and hold until you believe the bull market is about to end. To do this, you must study the overall trend rather than focus on tips or special factors affecting individual stocks. Then you must forget all about your stocks—completely forget them! Until you see—or, if you prefer to say, until you think you see—the market reversing and the entire trend beginning to reverse.

To do this, you must use your own mind and judgment; otherwise, my advice would be as idiotic as telling you to buy low and sell high. One of the most helpful things anyone can learn is to stop trying to catch the last tick—or the first tick. These two ticks are the most expensive things in the world. Collectively, they have cost stock investors millions of dollars—enough to build a transcontinental cement highway across America.

A person who lacks confidence in their judgment cannot go far in this game. These are roughly the lessons I have learned—to study the overall situation, take positions, and stick with them. I can wait without the slightest impatience, see a downturn coming, and remain unwavering, knowing it is only temporary. I once shorted 100,000 shares, foreseeing a major rebound was imminent. I concluded—and correctly so—that this rebound seemed inevitable and even healthy, and it would make a $1 million difference in my paper profits. Still, I stood firm, watching half of my paper profits vanish (Note: Knowing the level prevents rigid adherence). I did not consider covering my position first and then shorting again during the rebound. I knew that if I did so, I might lose my position and thereby miss the chance to secure substantial profits. Only major fluctuations can make you substantial profits.

Speculation is a game, but more importantly, it is your own business that requires continuous effort, dedication, and reflection.

I am looking for a game bigger than mere entertainment or social interaction. I want to become the best in the stock market through my efforts, which brings me true joy and satisfaction. Trading stocks is essentially playing a game, and one must win this game. A good stock trader must resemble a well-trained professional athlete, cultivating healthy habits and maintaining abundant energy if they wish to keep their vitality consistently at its peak. Physical strength and mental energy must align because there is no battlefield more intense or exhilarating than the stock market.

What drives me is certainly not money; it is a game, a game of solving puzzles, a game that confounds and complicates the greatest minds in human history. For me, passion, challenge, and excitement lie in winning this game, a game that is a vibrant riddle with a pun for an answer, and it is I who must convey this answer to all the men and women speculating on Wall Street. In this game, your nerves are pushed to their limits, but the rewards are also immense. My career is trading — adhering to the facts as they present themselves, rather than to what I think others ought to do.

Let me remind you: your success will be directly proportional to the sincerity and loyalty you exhibit in your efforts, which include maintaining your own records, thinking independently, and drawing your own conclusions. A person who wants to make a living from this game (speculation) must trust themselves and their judgment. No one can make a fortune by relying on others telling them what to do. The stock market is the greatest and most complex puzzle devised by humanity, and whoever unravels this puzzle deserves the grand prize. It takes a long time for someone to learn all the lessons from their mistakes. Some say that every issue has two sides, but the stock market has only one — not the side of the bulls or the bears, but the side of being right. Imprinting this principle deeply in my mind took far longer than most technical aspects of stock speculation.

In speculation, there is only one path to success, and that is hard work, hard work, and more hard work.

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Editor/KOKO