Livermores Market Key

[trader_dante]

I am setting up this journal to document trades based on Jesse Livermores Market Key.

As he wrote in his own words in 1940: "At length the secret unfolded...if I would but use my eyes, I would see the formation of patterns that would foretell major movements."

I will use it to record price action in two US Stocks: United Technologies (UTX) and 3M (MMM).

I have chosen these two stocks as they are both in the same sector (group) and are both selling around $30.00 or higher.

They are also both one of the 30 most popular and widely-held stocks in the United States which fits Jesses criteria that a trader should "confine your studies to the prominent stocks of the day. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole."

The Key is complex and market volatility has changed substantially since Livermores time but I will follow his path initially and use a swing filter of 20% and a penetration filter of one half that.

-Tom

 

[north5]

Out of interest where could I get more info on this to be able follow this thread. Looks like it could be interesting.

 

[trader_dante]

Jesse Livermore wrote a book called "How To Trade in Stocks" that was printed in 1940.

The Market Key is featured in it.

 

[north5]

Ah. OK I will see if it is reproduced anywhere on the internet then or maybe add it to my Xmas list.

 

[rawrschach]

I have this lying on my desk, too lazy to try it myself ^^

 

[minch]

Jesse Livermore wrote a book called "How To Trade in Stocks" that was printed in 1940.

The Market Key is featured in it.

I love this book, ive lost count of how often ive re read it. This is the way i aspire to trade, finding the pivotal points and hanging on during minor retracements.
Im still in his bucket shop mode.
If you have the patience to utilise his Market Key and update your records.
You have got my vote.

 

[jonnyace]

He busted out 3 times I think and killed himself when broke for the final time, yet still thousands of traders rate him as one of the greatest - discuss!!

 

[options]

He busted out 3 times I think and killed himself when broke for the final time, yet still thousands of traders rate him as one of the greatest - discuss!!

This has been talked about before on another thread, so best not to derail this one.

 

[jonnyace]

This has been talked about before on another thread, so best not to derail this one.

Good call - can you point me in the direction of the thread?

Thx

 

[BSD]

I have absolutely the highest respect for Livermore, a man who started with zero and several times ended up extremely rich, at one point even a Billionaire in todays money.

But to be honest the Market Key has zero to do with how he says he traded in Reminiscences of a Stock Operator where his approach was the height of laudable simplicity.

My interpretation is that when he wrote "How I trade in stocks" he was in a period of his life when he was broke and needed the income from the book to kickstart his fresh start with some direly needed funds.

And having had prior and ample experience of the beliefs and xpectations of most people when it comes to trading - an insight that is still equally applicable 100 years down the line hehe - he probably thought that first of all nobody would have the discipline to do what needs to be done in the first place, and, second of all and relevantly in this context, that the public wants something that sounds difficult, complex and clever, that the public would never believe that something as simple as his approach from Reminscences could be behind his incredible wealth, and the public simply got what they wanted with the Market Key.



Reminds me of Soros in fact:

"My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ, at least half of this is bulls**t, I mean, you know the reason he changes his position in the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it's his early warning sign."

—George Soros's son, Robert, on his father's Theory of Reflexivity.

Soros himself essentially went on to criticize his own theory in the next edition of the book -- admitting that it was essentially incomprehensible. Those who had claimed to have understood it in the first place were just fooling themselves.
George Soros's #1 Investment Secret Revealed The Global Guru -

But don't let that get in the way of this, it will still be very interesting to see how this plays out, no matter if Livermore used this or not it is still an interesting theory that is absolutely worth being tested.

Tom, you always have some great ideas I must admit.

 

[north5]

BSD,

I hadn't thought of it like that - you may be on to something. I don't know the Livermore system so can't really comment - a quick look at descriptions on the internet about it (which may or may not be accurate) don't flag it up as anything too misleading though.

I must be good company as I also failed to finish Alchemy of Finance. I do however recommend the forex chapter in the book which I thought was enlightening and so made it worth trying.

 

[BSD]

Well North I just noted the enormous discrepancy between Reminiscences, his entire no-nonsense, common-sensical approach there that actually originally formed and still forms the basis for my own trading, and the later pretty mechanical and complex Market Key, and to solve that mystery had a look at the context in which the latter was written.

But it's still going to be very interesting to see how this unfolds as no matter what the reasoning behind the Market Key was it's still a noteworthy approach.

I'm really looking forward to this.

 

[trader_dante]

Thank you to everyone for their interest and support in this.

I expect that there may be prolonged periods between posting because the strategy is not reliant on TIME rather it is reliant on PRICE.

Rest assured I will update as and when necessary.

 

[milt]

Well,it could'nt have worked that good...i saw on pbs.org (the great crash/depression podcasts) a few weeks ago that Livermore topped himself in 1940.

 

[trader_dante]

Well,it could'nt have worked that good...i saw on pbs.org (the great crash/depression podcasts) a few weeks ago that Livermore topped himself in 1940.

This is a totally inane comment.

Jesse was prone to depression throughout his whole life.

I suggest you read up on him a bit more mate.

 

[dilesh23]

Sylvia Plath stuck her head in an oven, doesn't mean she wasn't a great poet :-0

 

[chilltrader]

yes... I think we need to focus on the skills which we are trying to learn from them.

I'm sure most of us are leading much less depressed lives than Jesse did, so no tutorials required on that front

 

[ian]

Well,it could'nt have worked that good...i saw on pbs.org (the great crash/depression podcasts) a few weeks ago that Livermore topped himself in 1940.

Charming....

 

[trader_dante]

Bramble:

You know how strong my belief is in the Market Key. But it has just totally left me speechless. I literally cannot believe what I am seeing. Someone just asked me to give them a stop for a long term trade long in Barclays based on the Key.

I asked him for the recent extreme high. Take that price and move the decimal point one place to the left to make 38.32 (stocks over 30) Subtract the natural reaction of 6 points: 32.32. Subtract the penetration filter of 3 to make 29.32. (at this point the path of least resistance changes) Move the decimal point one place back to the right: 293.2

Pull up a chart of Barclays on the Daily. Look at that price.

Tell me: is there a universal mathematical formula to chart the markets just needing the extreme highs and lows of each day?

Did Livermore know it?

And did he reveal it?

 

[TheBramble]

LOL. Head spinning indeed…

I just knew there would be a way to manipulate it into current stock values, non-dollar denominated stocks and, yep, even FX. Whatever this ‘stuff’ is, it had (has?) to work on pretty much anything that’s freely traded. As to the ‘why’ it works – your guess…

However, it is spooky if that's all there is to it, I agree.

Needs a LOT of testing on these 'uncommon' target areas.

I need to get back to completing my notes on MK as I’m still not sure I’ve got a handle on it. Simple or not, the language I find very difficult for some reasons to make sense of.

Good work Tom, your perseverance has paid off it would seem. Big time.