While I was reviewing my finances earlier this evening, I got to wonder what Jesse Livermore would be doing if he were alive today. Would he be using the trading strategies that worked for him in the first part of the 20th century? Would he be trading stocks and commodities? Or would he be trading options or CFDs or some other derivative?
The answer to the first question is, I think, straightforward. Livermore’s opinion was that:
“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again”.
Today’s speculators, driven by the same emotions of greed and fear that drove their counterparts one hundred years ago, leave the same telltale traces in the price and volume action of whatever they are trading. Livermore would be looking for the familiar patterns and, when he was sure he had seen a familiar one, he would trade it.
Of course, he wouldn’t be reading a ticker tape for price and volume action; he would be reading it on his screen. It’s quite likely also that he’d be trading from home. Livermore, although sociable outside market hours, was a silent loner while trading. The prospect of sitting alone, trading quietly from his study would surely have attracted the great man. He would still be reading the numbers directly for indications of market direction. Charting was fashionable when Livermore was trading but he chose not to use it. He said he was better able to interpret prices and volumes when they came as numbers rather than plotted on a chart.
Jesse Livermore traded with high leverage. When the market moved, he wanted to ensure his gains were worthwhile. If he were going to trade stocks and commodities today, he would certainly be using high leverage methods.
The biggest commodity markets today are the forex markets. For traders of any consequence today, margin rates of 1 percent are available on the forex markets – in other words you put in $1 to buy $100 worth of currency – so I suspect Jesse would be trading the forex exchanges heavily. He liked to buy strength and sell weakness, so he would have been shorting the US dollar for some time.
In terms of the stock market, the US indices have lost their momentum at the moment, which means Jesse would be sitting on the sidelines, waiting for a breakout.