Security Markets Wisdom (Part 1)

Market Wisdom - In this series I will talk about most of the trading rules that have been shared by market pandits from the past and yet they are been violated in today's world by traders in the hopes of seeing a different outcome.

Trading Securities in markets are primarily driven by two psychological biases - Greed and Fear. Greed lets people take risks that they haven't thought through deep enough and they only appreciate it after seeing it. These excessing greed can lead to either huge drawdowns or entire portfolio ruin.

There have been many market pundits who have shared their wisdom from their own experiences. In this series of "Market Wisdom", I will share what they told us and yet people lack discipline and violate these rules over and over leading to negative returns in Portfolio.

In Post 1 of the series, I will post the infamous "Jesse Livermore's" trading rules that were written back in 1940. All of these rules are taken either from reading books on JL, or through various readings at reliable financial resources websites.

Market Wisdom by Jesse Livermore: 

1. Nothing new ever occurs in the business of speculating or investing in securities and commodities.
2. Money cannot consistently be made trading every day or every week during the year.
3. I become a buyer as soon as a stock makes a new high on its movement after having had a normal reaction.
4. Never buy a stock because it has had a big decline from its previous high.
5. Never sell a stock because it seems high-priced.
6. Markets are never wrong – opinions often are.
7. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole.
8. The real money made in speculating has been in commitments showing in profit right from the start.
9. As long as a stock is acting right, and the market is right, do not be in a hurry to take profits.
10. One should never permit speculative ventures to run into investments.
11. The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.
12. Never average losses.
13. Wishful thinking must be banished.
14. Big movements take time to develop.
15. Do not become completely bearish or bullish on the whole market because one stock in some particular group has plainly reversed its course from the general trend.
16. It is much easier to watch a few than many. [Don't trade too many different securities]
17. Only a handful of people ever make money on tips. Beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.
18. The human side of every person is the greatest enemy of the average investor or speculator.
19. It is not good to be too curious about all the reasons behind price movements.
20. The leaders of today may not be the leaders of two years from now. 
21. Don't trust your own opinion and back your judgment until the action of the market itself confirms your opinion.

This is the end of Part 1. Stay tuned for Part 2

-Nitin