Monday, April 20, 2009

Jesse Livermore Trading Rules: The 10% Loss Rule

I like to read about the investing greats, and Jesse Livermore is one of the all-time great traders. One of his trading rules is the 10% loss rule:

"I call this my 'Bucket Shop' rule, because I learned it in the bucket shops where I worked all my trades with 10% margin. I was automatically sold out by the bucket shops if the loss exceeded the 10% limit. The 10% loss rule became my most important rule for managing money. It is also a key 'timing' rule...since it automatically sets the time to exit a trade.

Remember--a speculator must set a firm stop before making a trade and must: NEVER SUSTAIN A LOSS OF MORE THAN 10% OF INVESTED CAPITAL!

IF YOU LOSE 50% YOU MUST GAIN 100% TO GET EVEN!"


This is a direct quote from Jesse Livermore's How to Trade in Stocks. It is a trading rule that I follow, and one of great importance. Read it. Learn it. Follow it.


Here's the data for losses, and the subsequent amount required to recover them.

% LOSS -- % TO RECOVER LOSS

8.0 ------- 8.7
10.0------- 11.1
20.0------- 25.0
30.0------- 42.8
40.0------- 66.6
50.0------- 100.0

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