When reading the classic investment book Market Wizards by Jack Shawager which interviewed many of the top traders in the 1980s, many of the traders made reference to Reminiscences of a Stock Operator, as one of the most important books for new traders to read to help them enjoy trading success. I read the book over 20 years ago and still re read it today - it really is one of those books which brings the brutal reality of trading in the Forex markets or any other investment to life.
The book tells the story of Livermore as he trades in the New England bucket shops and his experiences as a speculator. Along the way he makes money and losses and gives his thoughts on his trading. he loses everything trading after making millions ( and keep in mind this was the 1920s its a big amount today but then really was a fortune) and every time he makes a mistake, he learns a lesson and shares his thoughts via some memorable quotes. If you keep his mistakes in mind and remember the quotes, they will keep you on track in terms of trading strategy in your quest for profits.
There is no investment strategy in the book, its real worth is to give traders an insight into, the unique psychological challenge which trading any market as an investor and speculator. Below I will just go through 5 quotes which I particularly like but there are of course many others.
“A loss never bothers me after I take it. I forget it overnight. But being wrong, not taking the loss, that is what does damage to the pocketbook and to the soul.”
Its as true today as back in the 1920s. Investors still have a problem taking their losses and keeping them small but if you want to win, you need to takes losses quickly and keep your equity intact sure its an obvious bit of wisdom but most traders still never do it.
"It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!
Patience to simply sit on the sidelines and wait for high odds trade set ups is one of the keys to make money. Most traders can't do this and let their emotions get the better of them and make trades with low odds of success. Also big trends go on for a long time so don't do what most investors do which is bank early hold them.
“Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity…It has always seemed to me the height of damfoolishness to trade on tips…”
Trading tips are all over newspapers, the financial news programs and people actually trade them which I have always found rather strange. In life and in investment, you need to do your own thinking and not follow others but just as in the 1920s today, most investors follow tips from the news or their brokers and lose money.
“The sucker has always tried to get something for nothing, and the appeal in all booms is frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity. People who look for easy money invariably find that it cannot be found on this sordid earth".
Today we have the Forex robot traders, so called insider Wall Street secrets and of course the gurus who can see into and predict the future! Of course you have to make no effort, you simply follow them and make a fortune and get something for nothing. Of course you do get something which is to see your account equity destroyed. It will never change and while times have moved on from the 1920s peoples naivety and greed when it comes to financial investing has not.
“Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday. The game does not change and neither does human nature.”
Today the majority of traders lose just as they did back in the 1920s and this will never change – the reason is human nature never changes. The book brings home to you, how little is changed in the last 100 years in investment markets – in fact it could have been written today and is just as valid in terms of its investment wisdom today as it was then.
This is really one of the top books for Forex traders and in our top 10 list of the most important books for new traders to read, we feature it and I would think, that most of the world's best investors, have it in their top 10. Should you read this book of course so go out and get a classic investment book which you will learn from and always dip back into afterwards for insight into what it takes to make money trading Forex or any other market.