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Jesse Livermore was known as the Boy Plunger, the Great Bear of Wall Street, and widely regarded as the greatest stock trader in history. Without a doubt Livermore was a genius. He had a brilliant mind for mathematics and a photographic memory for numbers. With the help of his mother, 14 year old Jesse ran away to Boston where he landed a job as chalkboard boy at Paine Webber. Every day he would write stock quotes on the blackboards and he began to notice something. With his photographic memory and facility with numbers, he noticed patterns in the action. He realized that a careful analysis of a stock's action could give clues about its future price direction.
With his meager resources Livermore explored the second great influence in his market education, the bucket shops. These were quasi-brokers somewhat akin to betting parlors. People could walk in off the street and bet on a stock with 10% down. At the bucket shops Livermore naturally learned one of his great trading rules, limit your losses to ten percent. But with his mind for numbers and patterns, Livermore won consistently. He played the market both ways, long and short. By age 16 he had over $1000 in cash, a heady sum in those days. He sent half back to his mother and with his remaining resources started to create his reputation.
Livermore became known as the Boy Plunger for his youthful good looks and habit of making large bets. He was so successful that the bucket shops banned him from their premises, just as casinos will banish consistent winners. So Livermore moved up to the big leagues, the stock market proper. Because he played both sides of the market, Livermore made some of his biggest plays in down markets. The crash of 1907 and the great crash of 1929 when he made over $100 million going short.
A man who developed a set of winning rules for trading the market, but who as often broke his rules and went broke. In 1934, five years after making his killing on Wall Street, the great man declared bankruptcy for last time. He never regained his touch. For all his wealth, Livermore suffered from clinical depression. He was a womanizer who alienated and ultimately divorced the one true love in his life, his second wife Dorothy. And he obviously didn't recognize the ominous omen of marrying his last wife, a woman whose four previous husbands had all committed suicide. Livermore was no exception for the luckless lady and he shot himself in November 1940.
His basic rules were cut your losses, probe the market with partial positions before committing full positions, and gauge the market based on price and volume.
"The stock market is the world's biggest gold mine, a gold mine that opens its doors every day and invites anyone and everyone in to plumb its depths and leave with wheelbarrows full of gold bars, if they can."