In the famous investment classic “Reminiscences of a Stock Operator“, Livermore was quoted to have said, “The market is always right”. Traders often quote this as a creed.
Livermore’s comment to some market veterans is not a definitive statement, but more like a mode of thinking that can help new traders. As a trader becomes more experienced and disciplined he or she can wander out of the premise that the market is always right, but for new traders it is a useful belief that will save money and keep them on the correct side of the market which is the defensive side.
For a new investor, applying Livermore’s famous quote to your trading can be very beneficial for several key reasons:
- It promotes discipline.
- If you believe the market is right, you’ll cut losses without hesitation and you’ll keep winners (see CANSLIM trading).
- You’ll try follow the trend of the market instead of trying to hope the market moves as you wish.
- It will force you to trade what your system and chart tells you and not what the noise from the media or your close colleague touts.
A new trader is prone to having overlarge positions and being overconfident in his trades. It is a known fact that for most investors less than half of trades will make money and far fewer will generate substantial profits.
Thus, by applying Livermore’s classic quote new investors can take a more disciplined approach to learning the great game of investing and establish a good foundation. It isn’t about getting rich over night and taking hot tips from others, no. It is about applying principles from the greats like Livermore and learning from their mistakes of over 50 year+ careers so you may succeed where they lacked.