Reminiscences of a Stock Operator - Highly Regarded Financial Book
Jesse Livermore was a stock speculator that lived from 1877 to 1940. He was famous for making and losing several multi-million dollar fortunes. This included selling short in the 1907 and 1929 market crashes. Although his thoughts and trading strategy are decades old, they are surprisingly still relevant today. You don't make millions in the stock market without having some kind of competence regardless of what time period you lived in.
1) Markets Do as They Please Regardless of What You Do
"I left Williamson's and tried other brokers' offices. In every one of them I lost money. It served me right, because I was trying to force the market into giving me what it didn't have to give - to wit, opportunities for making money."
After Livermore made a fortune speculating, he subsequently lost a great deal of that fortune in the stock market. He began borrowing money to fund his stock trading. Of course, he had trouble making money because he was too concerned about paying his creditors back. He began to try to "force the market" to give him profits. The markets will do what they will regardless of where you got in or got out. The question is are you going to be along for the ride.
2) Trading to Pay Your Bills is Harder Than It Looks
"As I studied the problem I saw that it wasn't a case that called for reading the tape but for reading my own self. I quite cold-bloodedly reached the conclusion that I would never be able to accomplish anything useful so long as I was worried, and it was equally plain that I should be worried so long as I owed money."
In Jesse Livermore's case, psychologically he was worried that he had to make money in order to pay his creditors. This obviously affected how he traded and as a result he lost even more money than he had initially borrowed. Having to trade stocks to pay the bills, puts pressure on the fact that you must have steady income from the markets. The stock markets don't care if you have to pay your water bill. There will be rallies and dead periods. If you want to trade for a living, you better be able to withstand the swings and understand there will be periods when you are not profitable.
3) If a Sector is Rallying, Buy Only The Best Stocks In that Sector
"Experience had taught me to beware of buying a stock that refuses to follow the group-leader"
If the financial sector is outperforming the SPY, then you would expect more of the stocks in that sector to be going up. If there is a laggard in that group, there is a reason it is a laggard. The reason isn't because hedge funds haven't done their research on the stock yet.
4) Follow the Path of Least Resistance
"You remember my trading theories about that line, don't you? Well, when the price line of least resistance is established I follow it, not because I am manipulating that particular stock at that particular moment but because I am a stock operator at all times."
It is much easier to run away from the wall then run through the wall. This is not to say you should run away from your problems in life, but in stock trading, prices move in the path of least resistance.
5) Do Your Own Research, Avoid Following Stock Tips
"I tell you it isn't pleasant to think that innocent people may have lost money following a tip of that sort. Perhaps you understand why I never give any myself"
Tips are just that. Tips. Following blindly is setting you up for epic ruin. First of all you have no idea what position that tipper is in. He may not even hold the stock he is recommending. Even if he is, you have no idea when he will unload his lot. Suppose he is selling his stock to you. Then you would be forced to dump it to someone else for a higher price.