March 21, 2008

Reminiscences Of A Stock Operator

On someone's recommendation, read the book 'Reminiscences of a Stock Operator'. Its a real life story of a very successful stock trader who practiced the habit of tape reading. It a story based set in the begining years of 20th century. Its a story about the legendary trader Jesse Livermore, and how he made and lost fortunes on the wall street. There were numerous instances when he lost all his earnings on the street, but everytime learnt something from the mistakes.

The book more than anything else stresses on the art of tape reading. The trader here concerns himself only with the story told by the tape. He sites innumerable stories of great traders, like the one below:

One day a very close friend of Livermore came to him and passed a tip that some Mr. XYZ was buying all the suger in the market, and he too should buy as there might be some good news expected on it. He added that Mr. XYZ was literally grabbing all the suger contracts available. Livermore, instead of buying, gave an order to sell 10000 lots. He waited for the fill, and after getting the fills, gave orders to sell 10000 lots more. His tipster was baffled, but he was calm. All the offering was gone in a second. Then he gave the order to buy 50000 lots. As he explained later, by selling 10000 lots twice, he was just testing if the information was correct. If he was able to sell everything without moving the price at all, it meant that someone was ready to buy everything at the market price. He tested it twice, and once convinced, bought the largest stake he could have afforded.

Its really a wonderful book, and anyone aspiring to be a good trader should read it atleast once.