Jesse Lauriston Livermore: the stock trader who wrote the rules and broke them

In 1929, Jesse Livermore bet on the collapse of Wall Street. The press credited him with millions in profits, and legend later made it 100 million dollars: no document from the period confirms that figure. What is established is what came next: less than five years later he filed for bankruptcy. No stock trader of his time understood the rules better, and he eventually wrote them down. His life is still the clearest case study of the gap between what a trader knows and what a trader does.

• Jesse Lauriston Livermore (1877-1940) made and lost several fortunes. The $100 million he supposedly made in the 1929 crash is legend: no source from the period gives that figure.
• He filed for bankruptcy twice, in 1915 and in 1934, and the press of his day counted four lost fortunes. His own accounts show how: a tip followed against his judgment, positions too big taken too early, a big win that made him careless.
• His trading principles still hold: trade with the trend, cut losses fast, let winners run, never trade someone else's opinion.
• The lesson for you: writing your rules down is not enough. You have to measure, trade after trade, whether you follow them.

Livermore's name comes up in every conversation about trading psychology, usually through Reminiscences of a Stock Operator, the account Edwin Lefèvre drew from his life, serialized in 1922 and published as a book in 1923. People quote his lines and forget his trajectory. Yet the trajectory teaches the most: a farm boy who was already beating the Boston bucket shops at fifteen, rebuilt a fortune on Wall Street several times, and finally lost to himself.

This Jesse Livermore biography relies on the newspapers of the time where they exist, on the fictionalized account of 1923 and on the book Livermore signed in 1940. It flags what belongs to legend, sets his rules against his actions, and pulls out what a trader can use today. Amounts are in the dollars of the time.

Who was Jesse Livermore?

Jesse Lauriston Livermore was born in 1877 in Shrewsbury, Massachusetts, on 26 July according to the available sources, into a poor farming family. He went to work at about fourteen, just out of grammar school, as a quotation-board boy in a Boston brokerage office, Paine, Webber & Co. according to Time magazine of 9 December 1940. He chalked onto the big board in the customers' room the prices a customer called out from beside the ticker. His biographers add that his father had pulled him out of school to work the farm and that his mother helped him leave. No document confirms it, and the 1923 account shows him going home to his parents after work.

That is where it all began. Writing the prices all day, he noticed they did not move at random and that certain sequences often announced what came next. According to Reminiscences, and to his own 1940 book, he kept his observations in a small notebook long before he dared to trade: he wrote down what a stock should do over the next few days, then checked. That notebook was, in effect, his first trading journal. The detail matters: the man who lost so much against his own rules started out by counting his hits and misses with an accountant's rigor.

The Boy Plunger of the bucket shops

At about fifteen he made his first profit: $3.12, his share of a bet on five shares of the Chicago, Burlington and Quincy, split half and half with another office boy in a bucket shop. He tells the story himself in How to Trade in Stocks (1940). These parlors, everywhere at the time, never bought a single share. Customers bet on the price chalked on the board with a tiny deposit, and the position was closed automatically the moment the deposit was gone. A casino bolted onto the stock market.

Livermore was so good at it that he quit his job at about fifteen. At the same age, by his own account, he laid his first thousand dollars in front of his mother, made in a few months. Still by his own recollection, the Boston shops, tired of losing, called him the Boy Plunger, the kid who bets big, then refused his business. By about twenty he says he had built up $10,000, a fortune for a farmer's son, before giving most of it back to the shops by trading nonstop.

The first trap was already set, and he did not see it. His method was built for a fake market where orders filled at the posted price, with no delay and no slippage. When he moved to New York around the turn of the century, with $2,500, to trade real stocks through a real broker, it stopped working: his orders filled later, at other prices. Within six months, by his own account, he had lost everything. Lefèvre has him say: "There I thought I was beating the game when in reality I was only beating the shop." A strategy that wins in a protected environment can lose in the real one. That is the whole distance between a backtest and a live forward test.

1901 to 1907: broke, then a millionaire

His New York start was brutal, and for those years the only source is the account given in Reminiscences of a Stock Operator. Wiped out a first time, Livermore borrowed a few hundred dollars from his broker and went off to rebuild his stake, under a false name, in the bucket shops of St. Louis. The book gives that broker an invented name. A modern annotator sees Edward F. Hutton in him, then a young New York broker, without proof. Back in New York during the 1901 boom, Livermore ran his account up to nearly $50,000, partly on Northern Pacific. On 9 May 1901 he saw the panic coming and sold short. He was right about the direction, and he lost everything: the ticker was running so far behind that his orders filled some twenty points below the price he was reading. The lesson is not about leverage but about execution: being right about the market is not enough.

In the spring of 1906, on vacation in Atlantic City, he shorted Union Pacific on a hunch he said he could not explain. Two days later came the news of the San Francisco earthquake. He then added to his position, this time by reasoning, and says he took $250,000 out of it in a few days. The trade is less clean than it looks: another version, reported by the New York Times of 9 September 2001, has him selling at the direction of a Boston speculator. He himself wrote in 1940: "Frankly, I am always suspicious of the inner mind tip-off and usually prefer to apply the cold scientific formula." What people forget is the sequel: a few months later, still by his own account, he had lost it all again by selling too early. Lefèvre has him sum it up in three words: "right and busted".

Then came the Panic of October 1907. On Thursday the 24th, money vanished from Wall Street, prices collapsed, and Livermore, short, saw his fortune pass one million dollars. He was thirty. The story goes that he made a million in a single day. Reminiscences says something else: his winnings exceeded one million that day, when he had already been worth more than $750,000 the summer before. It also tells how one of the partners of the foremost banking house in the Street, never named, sent word asking him not to sell any more stocks that day. He had already started buying, and answered that he would buy as much as he could carry. Legend turned the banker into J. P. Morgan himself. Nothing proves it. In the same account, the newspapers credited him with several millions, while he put himself at a little over one. He bought a steam yacht, and Wall Street, Time wrote, dubbed him the Boy Plunger again.

1908: cotton, and another man's opinion

The next year began with a success. In May 1908 he won in cotton, a market he says he had traded for a long time, and some papers called him the Cotton King. Then he made the mistake he would spend the rest of his life warning against. Theodore Price, the most prominent cotton speculator of the day, joined him in a bull pool. Livermore later told how he had been short on his own read of the market, and let himself be talked into the opposite. On 20 August 1908 the pool collapsed. A reporter put to him the losses rumor credited him with. His answer ran in the New York Times of 21 August 1908: "I keep my own books, and I am not publishing them to the Street." The press put his loss at close to a million dollars, his own account at nine-tenths of his stake. A Boston paper reported the rumor that Price had already reversed his position. Livermore never accused him of it.

Reminiscences tells the story under the name Percy Thomas, whom the 2010 annotated edition identifies as Price, and in it Livermore blames no one but himself. It places his most telling mistake at the heart of that deal: holding both winning wheat and losing cotton, he sold the wheat and kept the cotton, then bought more to hold the price up. "The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out," Lefèvre has him say. Cut the winner, feed the loser: the exact opposite of the rule stated in the same passage, "Always sell what shows you a loss and keep what shows you a profit." Adding to a position that goes against you turns a mistake into a disaster, the same mechanism as revenge trading, long before it had a name.

He drew a rule from it that he repeated as late as his 1940 book: never trade on someone else's advice. Reminiscences pins down the danger, which is not only the tip whispered in your ear but the persuasive force of a brilliant mind. "No, sir, nobody can make big money on what someone else tells him to do," it reads. A tip, even from an expert, is a trade you have not analyzed, so a trade you do not know how to exit.

1915: bankruptcy, then the comeback

The cotton of 1908 did not ruin him in one stroke. In the summer of 1909, short of cotton and wheat, he was wrong again. A dispatch carried by several papers, among them the Stevens Point Gazette of 11 August 1909, announced that he was broke and that his name had been erased from his broker's doors. Then came, by his account, four lean years, 1911 to 1914, during which he ran up debts. On 17 February 1915 he filed for bankruptcy, the New York Times of 18 February 1915 reported: $102,474 in declared debts, more than a million by his own reckoning. It was his first official bankruptcy.

He did not disappear. From 1915, and above all in 1916, stocks lifted by war orders put him back on his feet. His 1940 book describes the comeback trade: he waited three weeks, bought Bethlehem Steel on 8 April 1915 as the stock neared 100, and saw it touch 117 the same day. On 10 January 1917 he announced that he had paid off two million dollars of debts that the bankruptcy had released him from, the Atlanta Constitution of 11 January 1917 reported. "I'm no longer a gambler," he said then, according to the Lowell Sun of 11 January 1917. Six weeks later, in Palm Beach, the New York Times of 24 February 1917 reported that he had just bought an emerald ring, said to have cost $120,000.

In December 1918 he married his second wife, Dorothy Wendt, described by Variety of 6 December 1918 as a show girl and cabaret singer. They had two sons, Jesse Jr., born in 1919, and Paul. His biographers turned her into a Ziegfeld Follies dancer: none of the period newspapers consulted says so.

That ability to bounce back is part of his legend, and it was real. It also had a downside: with each comeback, the lifestyle returned with the fortune, and the appetite for the huge trade with it. This time, though, he took one precaution. Reminiscences has him say that he put money into annuities, then into trusts for his wife and son, beyond his own reach: "By doing what I did my wife and child are safe from me."

1929: the legend of the $100 million

It is the most famous episode of his life, and the most misunderstood. During the bull market of the twenties he had already bet on a decline, too early, and lost a large part of his fortune doing it. In the fall of 1929 he turned seller again. The New York Times of 20 October 1929 reported what Wall Street was saying: Livermore had been short for more than a month, at the head of a group of bears, and his profits, "if the stories about his recent operations can be credited, run into the millions". The next day he issued a denial, printed in the New York Times of 22 October 1929: "It is very foolish to think that any individual or combination of individuals could artificially bring about a decline in the stock market in a country so large and so prosperous as the United States."

The market collapsed anyway, and the public had found its culprit. Livermore received death threats and hired a former policeman as a bodyguard, according to the New York Times of 21 December 1929. This is where the $100 million figure was born. No newspaper of the time gives it. It appears only some sixty years after his death, in a biography without notes that the New York Times of 9 September 2001 judged useless to anyone interested in the history of Wall Street. And according to an Associated Press dispatch printed in the Lincoln Star of 29 November 1940, Livermore testified under oath that his profit on any single transaction had never reached five million dollars.

The archives show something else entirely. On 12 November 1929, three weeks after the crash, he told the New York Times that the leading stocks had fallen too low. The headline in the New York Times of 13 November 1929 read "Livermore Now a Bull". The market bounced until the spring of 1930, then fell for more than two years, until the summer of 1932. For a buyer, that is a drawdown few accounts survive. The man whose first rule was to follow the trend had bought into a bear market. Time of 9 December 1940 summed it up: "When the Coolidge market broke, there were angry stories that Trader Livermore had smashed it. It had, in fact, smashed him."

1934: bankrupt again

How did Jesse Livermore lose his fortune? His own lawyer gave the explanation in 1934: the decline in prices in the spring of 1930, then in the summer of 1932. He had turned buyer again. Add back taxes and a private life coming apart. Dorothy was granted a divorce in Reno on 16 September 1932, according to an Associated Press dispatch printed in the St. Louis Post-Dispatch of 17 September 1932. The property settlement was arranged out of court and its amount was never published: the $10 million quoted everywhere rests on no document from the period. Nine months later the Great Neck estate, which by then belonged to Dorothy and which the press valued at $1.35 million, was sold at auction for $168,000 to pay her own creditors, the New York Times of 29 June 1933 reported.

In March 1933 Livermore married again, to Harriet Metz Noble, a concert singer from Omaha. In December he vanished for a whole afternoon. His wife called the police, the papers talked of a kidnapping, and he turned up the next day after a night in a hotel, his mind a blank. His doctor, quoted by Time of 1 January 1934, spoke of amnesia and a nervous breakdown.

On 5 March 1934 he filed for bankruptcy, according to the Associated Press dispatch printed in the Atlanta Constitution of 6 March 1934: $2,259,212 in debts against $184,900 in assets, $150,000 of it life insurance. He was at once suspended from the Chicago Board of Trade. The papers called it his fourth bankruptcy, because his lawyers counted three earlier failures, all repaid. In court it was his second, after 1915. Time of 19 March 1934 wrote that at 56 he was back where he started at 16. In late November 1935 a family tragedy made the front pages: in California, during a quarrel, Dorothy shot and wounded their elder son, who was sixteen, the Washington Post of 30 November 1935 reported. He survived, and later testified that it was an accident. Livermore himself partly recovered: in 1937 he paid off more than $800,000 in back taxes, according to the New York Times of 1 April 1937.

What he knew: Jesse Livermore's trading rules

On 3 May 1940 came How to Trade in Stocks, the only book published under his own name. It lays out a method that Reminiscences only hinted at. These are the principles that recur in both books, the ones traders still quote a century later, and the core of what people call the Jesse Livermore trading strategy. One caution when reading them: what comes from Reminiscences is attributed to him by Lefèvre, what comes from the 1940 book is in his own hand.

• Follow the line of least resistance. Price goes where it meets the least opposition. You do not guess the direction, you wait for the market to show it, then you follow.
• Wait for pivotal points. Enter only when price breaks through a key level that confirms the move, even if it means missing the start. The term comes from his 1940 book, where he also admits he lost money every time he lacked that patience.
• Cut losses quickly. A position that goes against you from the entry is a signal, not an opinion to defend. He wrote it in 1940: "Never average losses."
• Let profits run. In chapter V of Reminiscences, Lefèvre has him say: "It never was my thinking that made the big money for me. It always was my sitting." In other words, holding a winning position without touching it.
• Add only to what is working. He built positions in stages, and each addition had to be confirmed by a profit on the previous one.
• Never trade on someone else's opinion, whether it is a tip or an expert's conviction. The second is the one he paid for most dearly, in 1908.
• Take money off the table. After each successful deal, he advised taking half the profit and locking it up in a safe deposit box. It is the only money, he wrote, that speculators ever take out of Wall Street.

The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you you hope that every day will be the last day—and you lose more than you should [...]. And when the market goes your way you become fearful that the next day will take away your profit, and you get out—too soon. (Edwin Lefèvre, Reminiscences of a Stock Operator, chapter X)

That passage describes the pairing of hope and fear, close to what we now call fear and greed: hope makes you hold losers, fear makes you cut winners. The text is Lefèvre's, but Livermore restated the idea in his own hand in 1940: when you inject hope and fear into the business of speculation, he wrote, you are apt to get the two confused and in reverse positions. Knowing it did not protect him.

What he did: the great gap

Put end to end, the episodes of his life draw a pattern with no mystery in it. Livermore did not lose because he did not know what to do. He lost in the moments when his emotions overrode his rules, and those moments often came right after a big win. He admitted as much in 1940: "I am human and subject to human weaknesses. Like all speculators, I permitted impatience to out-maneuver good judgment."

The most dangerous moment was the day after each victory. After 1907, and after a first successful cotton trade, he dropped his own read of that market for that of a mind he found brilliant. After October 1929, with the whole country seeing him as the big winner of the crash, he declared himself a buyer. He wrote it himself in 1940: after a period of success there is always the temptation to become careless or excessively ambitious. The big win is when traders feel strongest, and also when they are closest to breaking their own rules, by sizing up or pushing leverage.

Then there is what neither rules nor discipline cover. In December 1933 his doctor was already speaking of a nervous breakdown, at a time when little more was ever said. His biographers describe long periods of depression. The documents of the period show, at the very least, a man who had already broken down once, seven years before his death. No method protects someone who is no longer in a state to apply it.

Five lessons for today's trader

1. Writing your rules down is not enough

Livermore had his rules in his head, and even on paper. What he lacked was a way to see, day after day, how far he drifted from them. That is what a trading journal is for: not just logging trades, but measuring how well you follow your trading rules. In Tradoshi, that is the job of the discipline score, which checks every day whether you followed your own rules and shows how much more your disciplined days earn. A gap you can see in numbers is a gap you can fix.

2. Distrust yourself right after a big win

Several of his ruins took root the day after a victory: 1906 after the earthquake, 1908 after the panic, 1930 after the crash. After a very good run, cut your size instead of raising it, and reread your rules before the next trade. Overtrading after a win costs as much as overtrading after a loss, it just feels better.

3. A tip is a trade you have not analyzed

A signal bought on a channel, a friend's opinion, an influencer's conviction: all of it is the cotton of 1908. Reminiscences says it in one line: "If I buy stocks on Smith's tip I must sell those same stocks on Smith's tip." If you do not know why you entered, you will not know when to get out. The only way to follow an outside idea is to run it through your own method, then own it as your trade, with your stop.

4. Keep your life separate from your account

Livermore advised taking out half of every profit, and at times he did: annuities, then a $100,000 trust fund in the name of each of his sons, which the 1934 bankruptcy brought to light. What he had placed beyond his own reach held. The rest flowed back into the market: in December 1940 his estate was valued at less than $10,000, according to the Associated Press dispatch printed in the St. Louis Post-Dispatch of 6 December 1940. Withdrawing part of your gains regularly, keeping savings that never serve as margin, and knowing your risk of ruin are boring rules. They are what keeps you off his path.

5. Your mental health is part of your risk management

Stress, fatigue, grief or discouragement degrade decisions long before you notice. Traders who last stop when they are not fit to trade, like a pilot who does not fly sick. Logging your emotional state next to your trades shows you, in numbers, what your mood costs your account.

Jesse Livermore books: Reminiscences and How to Trade in Stocks

Reminiscences of a Stock Operator, by the journalist Edwin Lefèvre, first ran as a serial starting in the Saturday Evening Post of 10 June 1922, then came out as a book in the summer of 1923. It tells Livermore's life under the name Larry Livingston, and the dedication gives the key: "To Jesse Lauriston Livermore". It is a fictionalized account, presented as a series of interviews: names changed, chronology compressed, the hero made younger. A line taken from it is therefore attributed to Livermore by his biographer, not a recorded statement. A century later it is still one of the most widely read books among traders.

How to Trade in Stocks is the only book Livermore signed himself. It was published on 3 May 1940, according to the Library of Congress Catalog of Copyright Entries, less than seven months before his death, and found its readers only long afterwards. Recent editions reworked by Richard Smitten add chapters to the 1940 text: only the original edition is reliable for a quotation. If you read just one, start with Reminiscences: it is a story, and its psychology lessons go down easily. More classics are in our selection of the best trading psychology books.

His death in 1940

On Thursday 28 November 1940, Jesse Livermore took his own life at the Sherry-Netherland hotel in Manhattan, at 63, five years almost to the day after the shooting of his son. It is often said that it was Thanksgiving Day: in New York that year, the holiday had been celebrated a week earlier, as the US National Archives recall. He left his wife Harriet eight small pages from a notebook. The police released only a few sentences, carried by the Associated Press in the Salem News of 29 November 1940 and by Time of 9 December 1940: "I am tired of fighting", "I am a failure". The man whose wizardry, in the words of the dispatch, was a Wall Street legend judged himself that way.

His story is not summed up by its ending, and it should not be read as trading's fate. It is simply a reminder that the pressure of an account does not stop at the close. If you are going through a dark period, related to your trading or not, talk to someone. In the United States you can call or text 988, the Suicide and Crisis Lifeline. Elsewhere, findahelpline.com lists free, confidential lines by country.

Frequently asked questions

Books and period press

• Edwin Lefèvre, Reminiscences of a Stock Operator, George H. Doran, 1923, first serialized in the Saturday Evening Post in 1922 and 1923.
• Jesse L. Livermore, How to Trade in Stocks, Duell, Sloan and Pearce, 1940.
• Period press, quoted and linked in the text: New York Times (1908 to 1937), Associated Press dispatches (1932 to 1940), Time of 19 March 1934 and Time of 9 December 1940.
• Diana B. Henriques, "Off the Shelf; A Speculator's Life Is Still Elusive", New York Times, 9 September 2001, on how little credit the biographies deserve. Figures that come only from those of Richard Smitten (2001) and Tom Rubython (2014) are flagged as legend.
• Photos: Financial World, 3 November 1923, and Acme Photo, November 1940, public domain, via Wikimedia Commons.