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Urban Trade Breakdowns - The Big Big Short, Jesse Livermore’s 1929 Short

If you are of American or European decent, your great grandparents lived through some crazy-ass shit. From 1914 to 1918, 16m of those fuckers died over a bunch of old-school European bullshit. Then Spanish flu hits (it’s like the flu, but you die) and another 50–150m people bounce. But when all that ended, shit got really good.  We Americans had all these factories and roads and harbors that we used to build shit for the war, the US was owed shitloads of money from the countries that did the killing and they now needed our shit to rebuild their shit. With everyone working, the money started pouring in, which we used to buy cars, phonographs, vacuum cleaners, refrigerators, and all the shit Americans need to survive.
And the stock market went parabolic. The DJIA went up over 600% in about 8 years and being the greedy motherfuckers we are, we went all-in on the shit, investing our life savings, mortgaging our houses, selling our parents silverware, pimping our sisters, and just dumping it all into the markets.
If there is a yolo god, his name was Jesse Livermore. Livermore was uneducated but smart as fuck. He learned to read at 3 ½ and was reading the financial pages by 5. His old man pulled him from school at 14 so he could become a farmer but Jesse was like, fuck that, and so he ran away from home at 14 and hustled his way into a job at Dean Whitter handwriting ticker-tape prices on a chalkboard so the suits didn’t have to get off their boney asses to see the prices.
And over time, after watching the tape all day, every day, he started to see some shit repeat itself. So he started trading for himself (he only traded his own money) and between 1877 and 1907, he made and lost fortunes, going completely broke over 5 times, but all the while figuring his shit out.
Here’s what he figured out: Back before computers, people traded with people, and people are not so hard to understand (just hard to deal with). We make emotional decisions and then back them up with fact. The ticker is just a measurement of basic human emotions: “greed, fear, ignorance, and hope”. Always work one trade at a time, since dudes can’t multitask for shit. Always trade the leading stocks, because popular shit trends, and you should only play the trend (let some other fuck guess the bottom or top — if a stock made an all-time high, he bought, if a stock made an all-time low, he shorted). Time your opportunities. Watch for unusual volume (greed, fear, hope) and established a “pivot point” price, which is basically a breakout above resistance or support. But don’t trade until the trend forms. Wait a day, during which time prices could go in any direction while volume usually decreased. Then, if a trend formed on higher volume, place a few “probe” trades to confirm the trend. If these paid, yolo hard as soon as you can, long or short, “pyramiding” the position along the way (borrow money against paper gains to buy or short more)
He never cost-averaged losing trades (well, he did several times, once on cotton against his better judgement and lost all his money), he got out. He also ignored fundamentals and just stuck with the price action. The way he figured, “there is always a reason for a stock acting the way it does, but the chances are that you will not be acquainted with that reason until sometime in the future”.
In August of 1929, our yolo god started to think shit was getting a little out of control. “Investors” had borrowed $8.5B to buy stocks, which was more than the total amount of dollars in circulation. I know this is hard as fuck for our QE-loving asses to imagine, but he started to wonder, hmmm… if there is no more money out there to put in the market, that might be a problem.
So he started watching the price action and at the end of September, the market slows and declines slightly. At first he sat it out, setting a pivot point and watching volume and prices, looking for a trend to form. By mid-October he goes short, placing trades at over 100 brokers to hide his position. On October 28th and 29th (“Black Monday” and “Black Tuesday”) the market loses 25% of it’s value and Livermore makes over $100m ($1.47B in today’s money).


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