Cut losses before they grow
Livermore went broke several times because he let wrong trades drag on. Set your stop loss before every order and respect it, even when you feel price is about to turn
Famous Traders · Classic Tape Reading
Jesse Livermore
Jesse Livermore / The Great Bear of Wall Street
A Massachusetts farm boy who started posting stock prices at 14 and became the most famous speculator of the early 20th century. He made huge profits shorting the market in the crises of 1907 and 1929, but also went broke several times (TIME magazine counted 4 by 1934). His life is the basis of the classic trading book Reminiscences of a Stock Operator.
THE WALL STREET TAPENEW YORK · WALL STREET · 1877–1940
Press photo, 1940 / Wikimedia Commons
№ 1 · SHORT 1929~$100MProfit from shorting the 1929 stock market crash (as reported by the press)
№ 2 · BOARD BOY14 years oldHis age when he started posting prices at Paine, Webber & Co. (1891)
№ 3 · BANKRUPT4 timesHe went broke by 1934, as counted by TIME magazine
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ProfileQuick facts
Full nameJesse Lauriston Livermore
NationalityAmerican
Born26 Jul 1877 · Shrewsbury, Massachusetts
EducationLeft school at 14 and learned from the stock quotation board
Main marketsUS stocks, cotton, wheat, corn
Where he tradedBucket shops in Boston · Wall Street, New York
Best known forShorting the market in the crises of 1907 and 1929
Key ideasPivotal Point · add to positions when you’re right · cut losses fast
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Early lifeEarly life: the boy who posted prices on the board
Livermore was born on 26 July 1877 in Shrewsbury, Massachusetts, to a poor farming family, and moved to Acton as a child. At 14 his father took him out of school to work on the farm, but he chose to leave home and find work in Boston, with his mother’s support.
In 1891 he got a job as a board boy, posting stock prices at the Boston office of the brokerage Paine, Webber & Co. (later PaineWebber), for $5 a week. The job let him watch prices move every day, and he began noting down price patterns that repeated.
The following year he made his first trade in a bucket shop, a parlour that took bets on stock prices without trading real shares. He put down $5 and made $3.12. After that he profited from these shops so consistently that many refused his orders, and he was nicknamed The Boy Plunger, before moving to New York in 1900.
QUOTATION BOARD · BOSTONTap a city to see the route
Massachusetts · 1877–1891 Childhood in a farming family in Shrewsbury and Acton. He left school at 14, then left home to find work in Boston with his mother’s support.
The figures on the board are illustrative, not real prices
BUCKET SHOPBOSTON · 1892 · TICKET № 0001
- Stake
- $5.00
- Profit
- +$3.12
- Return
- +62%
The first trade of a 15-year-old, in a parlour that took bets on stock prices without trading real shares
PAIDA turning point in his thinkingAs told in Reminiscences, when he moved to trading through a real brokerage in New York he lost almost all his capital at first, because the short-term betting that worked in bucket shops didn’t work in the real market. This experience turned him towards catching big trends and timing.
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Boom & bust ledgerLife ledger: rich, then broke, again and again
Livermore’s life was a cycle of getting rich and going broke. He made huge profits several times by shorting falling markets, but went broke 4 times, as counted by TIME magazine. This timeline covers the key highs and lows.
BOOM · BUST · 1891–1940Tap a point to jump to the ledger entry
| YEAR | ENTRY | INK |
|---|---|---|
| 1891 | Starts as a board boy at Paine, Webber & Co.Boston office, $5 a week, at age 14 | EVENT |
| 1892 | First trade in a bucket shopPut down $5, made $3.12 | GAIN |
| 1900 | Moves to New York to tradeSwitches from bucket shops to trading through a real brokerage | EVENT |
| 1901 | Loses almost all his capital in the real marketHas to rebuild his capital from scratch | LOSS |
| 1906 | Shorts Union PacificBefore the San Francisco earthquake, making about $250,000 | GAIN |
| 1907 | Shorts the market in the Panic of 1907About $1 million in profit in a single day (some sources put his total for the crisis at about $3 million). He stopped shorting at the request of J.P. Morgan’s side | GAIN |
| 1908 | Heavy losses in cottonTrusted another cotton speculator’s advice and lost nearly everything | LOSS |
| 1915 | Files for bankruptcy | LOSS |
| 1917 | Repays his creditors in fullAfter profiting again during World War I | GAIN |
| 1923 | Reminiscences of a Stock Operator is publishedEdwin Lefèvre wrote it from Livermore’s life story, under the character name Larry Livingston | EVENT |
| 1929 | Shorts the stock market in the 1929 crashThe press reported a profit of about $100 million | LEGEND |
| 1934 | Bankrupt again (TIME counts it as the 4th time)Debts of about $2.26 million according to TIME, and suspended from the Chicago Board of Trade | LOSS |
| 1940 | Publishes How to Trade in StocksLater that year (28 Nov) he died by suicide in New York, aged 63 | EVENT |
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Crash room · Oct 19291929: the man who shorted the collapsing stock market
In the late 1920s the US stock market rose strongly and steadily, driven largely by borrowed money (margin). According to the biography by Richard Smitten, Livermore believed prices had run far beyond fundamentals and gradually built short positions through several brokerages so no one could see his full size. At first the market kept rising, leaving him with paper losses for a while.
In late October 1929 the market slumped for several days in a row. The Dow Jones fell 12.82% on the 28th and another 11.73% on 29 October, when about 16 million shares traded. By mid-November the index had lost almost half its value from the peak. The press reported that Livermore made about $100 million and called him The Great Bear of Wall Street.
The fame came with hatred. Many people blamed him for the crash. He received death threats and had to hire bodyguards, and only a few years later most of the money was gone and he filed for bankruptcy in 1934. The lesson: one big win doesn’t guarantee long-term survival.
On 29 October 1929 about 16.4 million shares changed hands, so many that the ticker tape ran hours behind the real market. Anyone watching only the tape didn’t know the real price at that moment.
EXTRA · EXTRATHE WALL STREET TAPE3 Sep 1929
Points on the chart are Dow Jones closes on key days, not a daily chart
CASHBACK REBATE · 1TRADERHolding trend trades for longer means keeping costs low
1TRADER is a partner (IB) and earns a commission when you open an account through our link · % is the share of IB commission returned to you · How to get rebates
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Tape reading deskTape room: practise trading by Livermore’s rules
Livermore had no modern charts. He read prices from a tape printed one trade at a time, and waited for price to pass a Pivotal Point before acting. Try being him for one round: read the tape step by step, choose whether to buy a test position, add to it or close it, then see how many of his rules you followed.
A made-up stock · you don’t know in advance which way each tape will go
Last price—
- Position
- 0 units
- Average cost
- —
- Open P/L
- $0
- Closed P/L
- $0
REPORT CARD
1 unit = 100 shares, up to 4 units. All three tapes are made-up prices for learning, not real data.
ADDING MACHINE · EXPECTANCYTrading system simulator · cut losses fast, let profits run
Livermore stressed that big money comes from holding a winning position long enough, not from trading in and out often. Adjust the win rate and the average win-to-loss size to see which kind of system has the edge over time.
Expectancy per trade (multiples of risk)
Total over 100 trades risking $100 each
Break-even win rate
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Apply to Forex and GoldUsing the Pivotal Point with Forex and gold
In How to Trade in Stocks, Livermore explains the Pivotal Point: a key price level that, once price gets through it, often marks the start of a new move. He waited for price to reach that point and show confirmation before trading, rather than guessing in advance.
Although Livermore traded stocks and commodities, the same principle works well for currency pairs and gold (XAUUSD), because these markets have clear support, resistance and turning points. What matters is planning before price gets there, not deciding on emotion while price is running.
PYRAMID · exampleAdd only when the previous trade is in profit
- Test positionPrice passes the key level
- 2nd entryFirst entry is in profit
- 3rd entryThe trend confirms further
- Don’t addIf price goes the wrong way
Each addition should be smaller or the same size, and move your stop loss with price. The proportions are an example, not Livermore’s formula.
- TELEGRAM · STOP1. Mark the key levels
Identify the main resistance and support on the daily chart, such as previous highs or lows where price reversed
- TELEGRAM · STOP2. Wait for price to confirm
Don’t enter before the level. Wait for price to clearly break through or bounce from it
- TELEGRAM · STOP3. Enter with a test position
Start small, with a stop loss on the other side of the key level
- TELEGRAM · STOP4. Add when in profit
Add only when the first position is in profit, and never average down
Livermore didn’t trade Forex as we know it today. These steps apply his principles; practise on a demo account before using real money.
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Trading styleTrading style: wait, test, then add
Livermore was a speculator who mainly read price action. He didn’t trade every day but waited for the market to give a clear signal, opened a first position to test his idea, and increased his size once the market proved him right. This approach became the foundation of trend following in later eras.
LIVERMORE LOOP
- 1Wait for the moment
- 2Test position
- 3Does the market confirm?
- 4Hold or exit
↻ Then go back to waiting for the next key level. Don’t trade just because you want to trade
- RULE № 1The market is never wrong
Our opinions are what can be wrong. If price doesn’t do what you expected, trust price over your own ideas
- RULE № 2Big money comes from waiting
In Reminiscences, the character based on him says the big money came from sitting on positions that were right, not from clever thinking or frequent trading
- RULE № 3Don’t average down
If your first trade is losing, don’t add money to lower your cost. That just means adding money to a wrong trade
- RULE № 4Hope and fear are the enemy
People hope when they should fear, and fear when they should hope, so they hold losing trades too long and close winning trades too soon
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LessonsLessons for Forex and gold traders
Your checklist
0/4
Add only to winning positions
Open a small test position first and increase size only if the market confirms. You lose little when wrong and gain a lot when right
Don’t trade on other people’s tips
The cotton losses of 1908 came from trusting others’ opinions instead of what price was saying. Learn to read trends yourself first
Set aside part of your profits
How to Trade in Stocks advises that every time you close a winning deal, you put half the profit aside, because money that always stays in the account can be lost on the next trade
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Quiz5-question quiz
Question 1 / 5
Where did Livermore make his first trade?
He made his first trade in 1892 in a Boston bucket shop, a parlour that took bets on stock prices, and made $3.12.
What did the press call Livermore after the 1929 crash?
He was nicknamed The Great Bear of Wall Street for shorting the market in the crash. The Boy Plunger was his teenage nickname in Boston.
What is the book that tells his life through the character Larry Livingston?
Reminiscences of a Stock Operator, written by Edwin Lefèvre and published in 1923.
Which matches Livermore’s principles?
He increased size when the market confirmed he was right, and never added money to a losing trade.
In the simulator, how does a system that wins 35% of the time but makes 3x its average loss perform over time?
Expectancy per trade = 0.35 × 3 − 0.65 × 1 = +0.4 times the risk. This system only needs to win 25% of the time to break even.
0/5
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Trade like LivermoreFollow in Livermore’s footsteps: where to start
Livermore’s lessons are most useful once you put them into practice. These tools on 1TRADER help you practise reading trends, planning and controlling risk starting today.
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Further readingFurther reading
- Reminiscences of a Stock OperatorEdwin Lefèvre · 1923Livermore’s life story as a novel, a classic trading book still recommended after almost a hundred years
- How to Trade in StocksJesse L. Livermore · 1940The book he wrote himself, explaining the Pivotal Point and his trading rules
- Jesse Livermore: World’s Greatest Stock TraderRichard Smitten · 2001A detailed biography covering both his personal life and his trading
Sources for this article
- Wikipedia: Jesse Livermore
- TIME (19 Mar 1934): Business: Fourth Down
- Forbes (1999): The Original Day Trader
- Wikipedia: Wall Street crash of 1929
- Federal Reserve History: Stock Market Crash of 1929
- Wiley: Jesse Livermore: World’s Greatest Stock Trader (Richard Smitten, 2001)
- HISTORY: Stock market crashes on Black Tuesday
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FAQFrequently asked questions
How rich was Jesse Livermore at his peak?
The press at the time reported that he made about $100 million shorting the market in the 1929 crash, which would be more than $1 billion in today’s money. The figure is an estimate, because he never disclosed all his accounts.
Is Reminiscences of a Stock Operator a true story?
It is a semi-biographical work that Edwin Lefèvre wrote from interviews with Livermore, using the character name Larry Livingston. The main events match his real life, but some details are told as fiction.
Why did Livermore go bankrupt so many times?
He used very large positions and high leverage, so he lost heavily when he was wrong. Both Reminiscences and his own book admit that his big losses came when he broke his own rules, such as trusting other people’s tips or jumping in before the right moment.
What is Livermore’s Pivotal Point?
A key price level that, once price gets through it, often marks the start of a new move. He used it as his entry signal instead of guessing in advance which way price would go.
What is a bucket shop?
A parlour that took bets on stock price moves without trading real shares. Customers put down a small margin and won or lost based on the prices on the board. These shops were stamped out in the US in the early 20th century.
Educational content, not investment advice. Figures come from news reports and published books, and some differ between sources. Some details come from Reminiscences of a Stock Operator, which is semi-fictional. · risk disclosure · Forex glossary