What did Jesse Livermore mean when he suggested only trading a stock with a potential 10 point swing coming?

Question

Also, what does he mean when he says to get out of a stock if it moves against you 3 or 4 points?

Answer 1

I RESPECTFULLY disagree with the previous responder.

JL is still valuable today. He was a trader and simply believed he wanted a stock to move potentially a certain amount in a certain direction.  He is suggesting that a stock must move 10 dollars per share.

His statement about 3 or 4 points is a statement about having a stop loss point and getting out of a stock when it moves against you. Some people might use a percentage loss, some an absolute number of points.

JL is in tune with charts, thus his tips you've cited, and thus my disagreement with the first responder, whom I feel is legitimate, but who has an alternate approach in that he is more concerned with what is called "value investing."

A value investor--a follower of Ben Graham-- today would probably be buying like mad, since the current market is priced at bargain prices. If you can sit for months, perhaps years, on a losing investment, this may work fine.

One of JL's principles that I think is particular worthy--he stated that one of the best qualities of a speculator is simply the ability to sit and wait. One should have a feel for when to act and when to just sit things out.

When reading JL, note that he went broke trading at least once in his life. His is a cautionary tale. And cautionary tales are what you need under your belt when trying to understand the markets.

Answer 2

The problem with this book is it is way, way too old to use as reference for today's market, e.g., different laws and  information is available to all instantly; otherwise, it is illegal knowledge (insider trading)

I would suggest a visit to your library for the book "Rule #1" and investopedia.com online

"An investment operation," Benjamin Graham's classic book on value investing wrote in his first book, 'Security Analysis,' "is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."