Successful Trader Training

Successful Trader Training: Lessons from Jesse Livermore

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Trader Training

The recent webinar we held, detailing the path to consistency of a coaching student, raised some questions about formal education, trader training and experience. We spoke about this debate in an earlier post, and today we would like to complement it with a blast from the past.

Jesse Livermore, in his famous book Reminiscences of a Stock Operator had dedicated a couple of pages to the theme of trader training. Once again, we find that some things just don’t change and his suggestions are as relevant today as they were in the early 1900s.

Trader Training = Medical Education

In Livermore’s own words (emphasis is our own):

“The physician […] learns the theory and then proceeds to devote his life to the practice. He observes and classifies all sorts of pathological phenomena. He learns to diagnose. If his diagnosis is correct […] he ought to do pretty well […] keeping in mind, of course, that human fallibility and the utterly unforeseen will keep him from scoring 100 percent of bull’s-eyes.

And then, as he gains in experience, he learns not only to do the right thing but to do it instantly, so that many people will think he does it instinctively. It really isn’t automatism.

You can transmit knowledge […] but not your experience.

Observation, experience, memory and mathematics – these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed. […] He must bet always on probabilities – that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years at the game […] he acts almost automatically.”

Unravelling Livermore’s Words

Jesse Livermore was very eloquent but also very precise in his definition of succesful trader training. However, there are some key comments that require further understanding.

A trader needs to start with some kind of theory. The question is: what theory? We would argue that a study of market dynamics is the theory a trader needs. In this context, let’s explore 2 dynamics that Livermore observed, which are valid today as they were in the past:

  • Pivot Points or “decision areas”: “Whenever I have had the patience to wait for the market to arrive at what I call a Pivotal Point before I started to trade; I have always made money in my operations.
  • Follow the Trend: “Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market.
    If it’s rising you should be long, if it’s falling you should be short.”

To illustrate Livermore’s Pivot concept (as I’ve interpreted it) let’s use the current situation on the Nasdaq, and the levels that were formed leading up to the current situation. The trend is clearly bullish, with prices well above the classic 200 SMA.

Trader Training

Source: TradingView

Each pivot point is a 2-way street. They are points on the chart (which was a Daily chart for Livermore, since he was recording the daily open/high/low in his journal) that have shown a decisive reaction previously. But you still cannot be lazy and deploy stop or limit orders at the area. You need to wait for the market’s reaction. In Livermore’s words:

“I never benefited much from a move if I did not get in at somewhere near the beginning of the move. And the reason is that I missed the backlog of profit which is very necessary to provide the courage and patience to sit through a move until the end comes – and to stay through any minor reactions or rallies which were bound to occur from time to time before the movement had completed its course.”

Trader Training

Source: TradingView

To me, this means you need to have the patience to sit and wait for the market to offer you clues to it’s potential intentions. When the market approaches the pivot points, ask yourself a few questions: are there evident signs of rejection? Are there candle patterns that would suggest strength or weakness? Or do I need to wait for more information?

Trader Training

Source: TradingView

The current situation, with Nasdaq at a pivot point, is showing a very short-term rejection at this point in time but momentum is still strong to the upside and no key supports have been broken. It’s too soon to call this a short-term top. More information is required.

But generally, this is one way to utilize Livermore’s technique nowadays, with a multi-timeframe approach.

Other examples of functional market dynamics that we use at FXRenew are:

  • volatility expansion/contractions (and we use this tool to spot them);
  • identifying trending markets with market type analysis;
  • staying on top of fundamental influences.

A trader needs to Practice. Too many people load up their trading accounts and risk their hard earned money in the markets without first verifying their ability to effectively participate in the markets. Demo trading, being so close to live conditions nowadays, is essential. But the kind of practice that Livermore is talking about is not uncontrained practice. The only kind of practice that works in the markets is disciplined repetition of a successful routine.  You can stare at the charts for 10.000 hours but unless you’re specializing in some way, finding a niche that offers a positive expectancy, those 10.000 hours are not very usefl.

A trader needs to observe and classify. The important things to observe are key behavoural traits that the market displays around the pivot points for example. By observing the market’s reaction time after time at the same places on the chart, you can gain relevant experience. Then, when you start to put on trades, you will need to record the details (MAE, MFE, win%, avg. win, avg. loss, etc.).

A trader must prepare for the Utterly Unforseen. This is potentially one of the most challenging points for retail traders. Spending hundreds of hours reading books on trading, on macroeconomics, on fundamentals, cannot insulate you from losses. There are simply too many variables at play on any given day, and nobody has the full picture of what is going on. So how can you prepare for the unforseen?

  • keep your risk under control;
  • only trade when you have a viable setup;
  • do not commit unforced errors like not following your trading plan, attempting to trade when the conditions are not right, jumping into the market ahead of influential news events, not being aware of the fundamental influences driving the markets.

Over to You

The most interesting takeaway from Livermore’s work, is that it applies just as well today as it did in the early 1900s. Times have changed, technology has changed, but the way prices move has remained largely the same. The only independent variable through time is the participant: human beings. So long as human beings (or robots programmed by humans) will trade the markets, prices will continue to convey the same patterns that Livermore (& other noteworthy traders) noticed in their time.

If you can create a trading plan based on timeless market dynamics (and veer away from indicators) your chances of success increase dramatically.

About the Author

Justin is a Forex trader and Coach. He is co-owner of, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

The post Successful Trader Training: Lessons from Jesse Livermore appeared first on FX Renew.

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