Overview

It’s been a while since I last published a meaningful post (mostly never).

I am not a trader by any means, but I have heard of Jesse Livermore a handful of times.

Curiosity got the best of me and I went down the rabbit hole. I started with his book How to Trade in Stocks, went through videos to understand it visually and some back and forth with an LLM.

I dont know if I would ever trade, but I thought this would be a good post to put out.

The Entry Point

You buy AFTER confirmation, not at the pivotal point itself.

Here’s how it works in practice:

Example - Automobile stock:

  • Stock consolidates between $62-$68 for several weeks
  • It breaks above $68 (this is your pivotal point)
  • You don’t buy yet - you wait for confirmation
  • Stock continues to $71 (3 points above the pivot)
  • NOW you buy - the breakout is confirmed

The key insight: You’re buying on demonstrated strength, not on hope. You pay a little more, but you’re buying proof that the move is real.

Adding to Winners (Pyramiding)

Livermore would add to positions as new pivotal points formed in the same direction.

Example - Steel manufacturer:

  • First entry: Buy at $45 after it confirms pivot at $42
  • Stock rallies to $51, pulls back to $48, then pushes to $54
  • Second entry: Buy more at $54 (new pivot at $51 confirmed)
  • Stock continues to $62, pulls back to $58, then hits $65
  • Third entry: Add again at $65 (new pivot at $62 confirmed)

Each addition is smaller than the previous one. Maybe 1000 shares first, 500 second, 300 third. This way, your average cost stays reasonable, and most money is in the best-performing position.

The Exit Point

You sell when the stock breaks back BELOW a pivotal point.

Example - Same steel stock:

  • You’re holding with pivotal points at $42, $51, and $62
  • Stock is at $67, then starts declining
  • It drops through $62 - warning sign, but you might hold
  • It breaks below $51 - sell signal, the trend is broken
  • You exit the position

Some traders would exit at the first broken pivot. Livermore sometimes held through one break but exited on the second, depending on market conditions.

The “Don’t Buy Dips” Rule

This is counterintuitive but crucial: Don’t buy when a stock pulls back to a pivotal point.

Example - Wrong way:

  • Railroad stock breaks $80 pivot, hits $83
  • Pulls back to $81
  • Amateur thinks: “Great! It’s cheaper now, I’ll buy the dip at $81”
  • Stock breaks below $80 - the move failed
  • Loss

Example - Livermore’s way:

  • Same setup, stock pulls back to $81
  • You wait - if the trend is real, it will resume
  • Stock bounces and hits $85
  • Now you buy - it’s proving strength again
  • Or, if it breaks $80, you never entered - saved yourself a loss

Wait for Confirmation

The discipline is in the waiting. Most people lose money by:

  • Buying too early (before confirmation)
  • Buying dips (hoping for reversal)
  • Selling too early (on normal pullbacks)

Example - Copper mining stock:

  • Trading at $34, looks bullish
  • Eager trader buys at $34
  • Stock drifts to $36, back to $34, up to $35, down to $33
  • Frustrated trader sells at $33 for a loss
  • Then stock breaks $37, confirms at $40, rallies to $52

Livermore would have waited for the $40 confirmation, bought then, and caught the real move.

The Critical Lesson

The number of pivotal points doesn’t determine when to buy - the confirmation does. You buy after the first confirmed pivot. You may add to winners as new pivots confirm. You exit when pivots break.

The system keeps you out of false moves and gets you into real trends, even if you “miss” the first few points of the move.

As Livermore said: “It never was my thinking that made the big money for me. It always was my sitting” - waiting for confirmed setups.