My sentiments while positioning into a market as a naive and hopeful boy with wishes of riches start with looking at a chart. The candlesticks are more or less random until I keep looking at them and start making patterns on them. I start to notice support and resistance lines at certain price areas.

I think to myself, if this goes any lower, I'll be buying at a discount since it all has to return to its previous highs, I assume. I'm a patient person, I think of myself, and now I also think, if it goes as low as XXX I'll buy. By this point, my FOMO is fuming. I jump into a position and the price immediately goes up. I pat myself on the back and think about how great I am, and the market keeps going up. I start to daydream about all the stuff I'll buy, all the people I'll brag to, and all the vanity I blind myself with.

However, the market has its way of humbling even the most arrogant traders. The price starts to come down. I react by flushing all those wishes away from my mind, deluding myself into thinking I'm still in control. The price comes down more. Now I'm thinking if it gets lower than XX, I'll put in another position. So I place a limit order. The price moves down past my initial entrance and gets a hair's inch to my limit order.

My balls are stuck on the seat from sweating so hard. Yes, I'm sitting nude in the chair. The price acts again moving up, bringing me back to green. With a sigh of relief, logically I'd exit, locking in the profit of, say, 0.03%. But those initial dreams of making it big on one gamble persist in my mind. So I stay in. The price moves south again, crashing into my limit order. A moment ago, I was dreaming with a fist-sized position, but now I'm red with two fist sizes. Another moment goes by, and what was several dips down escalates to several dozen percentage points. Petrified, the price keeps going down and down. What was a small paper profit is now a hot red pit in my account. I close the position.

This natural progression of a retail trader is all too common.

I decided to do something about it, which brings me to this week's book. "Reminiscences of a Stock Operator" by Edwin Lefèvre, published in 1923 as a narrative based on real-life trader Jesse Livermore. Although he traded over a century ago, his insights into the market still hold a bright candle of truth.

My first takeaway was the simplicity of what trading really is. It's to read, analyze, and memorize price action, and anticipate its next move to enter the market and exit with more money than before. Those points are fairly simple and obvious, yet it is in the simplicity over which many market participants lose, myself included.

The book makes an important distinction between traders and investors. Traders speculate while investors accumulate cash flows. A trader does not concern themselves with dividends while investors scuttle over yield. This distinction was crucial for me. I started trading with the mindset of an investor, focusing on long-term gains and dividends, rather than the quick, speculative profits that trading entails.

Lefèvre’s narrative is filled with nuggets of wisdom that are still relevant today:

  • "Men who can be both right and sit tight are uncommon."
  • "The thing to determine is the speculative line of least resistance at the moment of trading."
  • "It doesn't pay to start wrong in anything."
  • "A man cannot be convinced against his own convictions."

These insights helped me recognize where I was going wrong. I was too emotional over trades, often moving in a direction contrary to the dominant market force. Following the trend is what traders do, and this book made me understand the importance of this principle. Emotions can cloud judgment, leading to poor decision-making. Emotions are reactive while instincts are ever-present and dormant inside. The importance of listening to those instincts or as some might call the gut is crucial to success not just in trading but in life in general.

By adopting the lessons from this book, I developed a more disciplined approach to trading. I learned to read and analyze price actions better, and to anticipate market movements with greater accuracy. This book doesn’t just offer trading strategies; it offers a mindset that is crucial for success.

For anyone serious about trading and wanting to avoid the common pitfalls that many traders face, I highly recommend "Reminiscences of a Stock Operator". The insights from Jesse Livermore’s experiences are invaluable, and applying them can significantly improve your trading approach.

To delve deeper into such trading wisdom and for more personal insights, make sure to follow my blog. Here, I share my journey, tips, and strategies to help you navigate the complex world of trading. Let's turn those trading dreams into reality together.

This is a reprint from my Paragraph