Jesse Livermore

Borrowing Some Wisdom from Jesse Livermore and my Trading Statement at Week End

Hello Traders,

I hope to share with you some of my trading thoughts from the true “trading masters” as I see them.  This topic is on money management today, which is by far of the greatest concern to a small account trader.

Quote:  “… from time to time remind a man that no profit should be counted safe until it is deposited in your bank to your credit.”  – Jesse Livermore

What trading insight was Jesse Livermore saying to us?

My thought process used to revolve around taking my trading account to the biggest balance I could possibly can .. but in my humble opinion … as I get older I am noticing the wisdom of the true trading masters is more and more correct.  It is most like figuring out how smart your parents truly are after you get over your teenage years.

So how have I applied this trading principal to my personal trading account?  What this means to me today is to have a set number in your trading account to take money off the table and bring it to your personal bank account.  With a starting trading account balance of $2,500.00, my first goal is to bring my trading account to $3,750.00.  This translated out to 1/2 of the starting trading account balance or a gain of $1,250.00.

Now the question is how much should you remove and count as a profit?  My thought process has brought me to the conclusion that 1/2 of the trading gain should be withdrawn back to your bank account.  This would mean an amount of $625.00.  Preferably, deposited into your LLC you should form as a trader or transferred there.  Of this amount, I will then subdivide it again into 1/2.

To be divided as follows:

  • 1/2 Back to Trading Reserves = $312.50
  • 1/2 Personal Uses = $312.50

Of the 1/2 for Personal Uses or the $312.50:

  • 10%  God/Donation/Charitable Giving
  • 10%  Saving
  • 10%  Spend
  • 10%  Repay/Loans
  • 60% Living Expenses

Now, with that being said, you can adjust your percentages to your own financial condition.  But in the beginning it is about surviving to trade another day.  The majority of the trading account withdraw should be deposited into a reserve fund in case of emergency to be sent back to your trading account, if needed.

The other 1/2 of your trading account gain is simply an example I am showing.  You can adjust your percentages to your own life as you see fit.  You may need more or less in living expenses.  But I would suggest the above as the model to use, and then adjust to your own financial situation.  This is something I had learned from the book, “The Richest Man In Babylon,” many years ago, and applied to my life as a trader.

So my next STAB (Starting Trading Account Balance) after the withdrawal/wire out will be around:  $2,500.00 + $625.00 = $3,125.00.

My next target in my trading account will be to bring my trading account balance to $4,687.50, which is 1/2 of the STAB of $3,125.00 or $1,562.50 added to the trading account to bring it to $4687.50, then another wire out in my trading account in the amount of $781.25, which is once again 1/2 of the total trading account gain.

And so on … and so on … etc … etc … etc …

At the end of 10 STABs, your trading account balance should be around $23,283.00.  You would have withdrawn a total of $20,783.00, 1/2 of this amount back to your trading reserves, and 1/2 to your living portion.

March 9th, 2012:  Trading Account Statement (week end)

 

Good Trading,

David “Tiger” Knight

About The Author

David M. Knight

I am a 30 Year Futures and Commodities Trading Veteran. In addition, I enjoy games of skill and chance like: poker, craps, blackjack and roulette. During my professional career, I have developed and implemented successful trading strategies and methods; along with winning systems in games of skill and chance. Join with me on our mutual journey together.