Livermore's Careful Mike Sucker

Although today's rebound in the averages returned me to the black for the first two months of 2007, as I was going through the nightly charts this evening, I felt that my confidence was shaken.

In Edwin LeFevre's "Reminiscences of a Stock Operator", Larry Livingston a.k.a. Jesse Livermore recounts how after the second time his account was blown out, he returned to Wall Street and traded like a "Careful Mike Sucker" for about one to two years.

Years later, Livermore would recount to his sons, that the cumulative effect of his first two blow outs had affected his confidence more than he would admit. While his analysis of market conditions and the overriding trend were accurate, he wasn't making as much money as he thought he should.

Instead of trusting his hunches, Livermore would trade very conservatively compared to his previous attempts. This had three negative implications: 1) He would wait for first pullbacks on momentum stocks that never occurred while watching in dismay as the stock would rise another forty points without him. 2) He would trade in smaller lots thereby limiting his potential maximum gain. 3) He was questioning his own decisions before the trade was even placed.

I get the sense that for the past several months, I have pretty much fallen into this category, and it took a market reaction to admit it. So what am I going to do to change it? I thought of doing the following (since what I'm doing now is obviously not working): reducing the number of positions, making concentrated bets, tighten stop losses, and using more auto alerts for automatic buys and sells.

Livermore stated one of the principal rules of any trader is "Don't be a sucker!" It is ok to have one bad day, but it is unacceptable to wallow around like a deer in the headlights. When it came down to it, everyone has a choice. Do I choose to be: a broker, a customer, a sucker, or a trader? If I can rediscover what it means to be a proficient trader, I will be one step closer in being a better person.