How to Trade in Stocks

If you're interest in swing trading or position trade in any instrument, this is a great lesson from a master in trading - Jesse Livermore.

Key Takeaways

Lesson 1

Build strategies where signals come from data the market gives you, not what you think it should do.

Lesson 2

Your strategy should explicitly define when not to trade. Edge = signal + environment.

Lesson 3

Return is a function of how well you manage downside. Your system should enforce sizing, stops, and scaling rules mechanically.

Why FoundryStrat Finds This Book Useful

1. Price Action Is the Primary Signal

Livermore believed that the market itself is the final authority. News, opinions, and narratives matter far less than how price actually behaves.

For system builders, this translates directly to:

Your rules should be based on observable market behaviour, not predictions.
Trends, breakouts, volume expansions, and volatility shifts often tell the truth before the story does.
If the price contradicts your thesis, price wins.

2. Trade Only When Conditions Favour You

Livermore emphasised the importance of waiting for the market to line up properly before acting. Most of his big losses came from trading when conditions weren’t right.

This is essentially filtering — a core concept for systematic traders:

Define the environment where your strategy performs best (trend, volatility regime, macro backdrop).
Sit out when your edge isn’t present.
Avoid the “always trading” mindset. Most edges are conditional, not universal.

3. Risk Management Is the Strategy

Livermore is famous for saying that his real mistakes were never in stock selection, but in poor position management.

Lessons that map directly to modern systematic design:

Always place a predetermined stop-loss.
Use position sizing to ensure no single trade can materially damage your account.
Add to winners only when they prove themselves; never average down losers.
Your first loss is the smallest — honour it.

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How to Trade in Stocks

Key Takeaways

Lesson 1

Lesson 2

Lesson 3

Why FoundryStrat Finds This Book Useful

1. Price Action Is the Primary Signal

Livermore believed that the market itself is the final authority. News, opinions, and narratives matter far less than how price actually behaves.

For system builders, this translates directly to:

Your rules should be based on observable market behaviour, not predictions.

Trends, breakouts, volume expansions, and volatility shifts often tell the truth before the story does.

If the price contradicts your thesis, price wins.

2. Trade Only When Conditions Favour You

Livermore emphasised the importance of waiting for the market to line up properly before acting. Most of his big losses came from trading when conditions weren’t right.

This is essentially filtering — a core concept for systematic traders:

Define the environment where your strategy performs best (trend, volatility regime, macro backdrop).

Sit out when your edge isn’t present.

Avoid the “always trading” mindset. Most edges are conditional, not universal.

3. Risk Management Is the Strategy

Livermore is famous for saying that his real mistakes were never in stock selection, but in poor position management.

Lessons that map directly to modern systematic design:

Always place a predetermined stop-loss.

Use position sizing to ensure no single trade can materially damage your account.

Add to winners only when they prove themselves; never average down losers.

Your first loss is the smallest — honour it.

How to Trade in Stocks

Key Takeaways

Lesson 1

Lesson 2

Lesson 3

Why FoundryStrat Finds This Book Useful

1. Price Action Is the Primary Signal

Livermore believed that the market itself is the final authority. News, opinions, and narratives matter far less than how price actually behaves.

For system builders, this translates directly to:

Your rules should be based on observable market behaviour, not predictions.

Trends, breakouts, volume expansions, and volatility shifts often tell the truth before the story does.

If the price contradicts your thesis, price wins.

​​

2. Trade Only When Conditions Favour You

Livermore emphasised the importance of waiting for the market to line up properly before acting. Most of his big losses came from trading when conditions weren’t right.

​

This is essentially filtering — a core concept for systematic traders:

Define the environment where your strategy performs best (trend, volatility regime, macro backdrop).

Sit out when your edge isn’t present.

Avoid the “always trading” mindset. Most edges are conditional, not universal.

3. Risk Management Is the Strategy

Livermore is famous for saying that his real mistakes were never in stock selection, but in poor position management.

Lessons that map directly to modern systematic design:

Always place a predetermined stop-loss.

Use position sizing to ensure no single trade can materially damage your account.

Add to winners only when they prove themselves; never average down losers.

Your first loss is the smallest — honour it.