- “Why didn’t you wait?”
- “Why were you so hasty?”
Then last week, the same thing happened again and being smarter, you decided to hold out. The trade continued losing. The longer you held it, the more you lost. But you knew then that as soon as you cut your loss, it would have turned around. So you held on and the losses kept mounting.
- “Why didn’t I cut sooner?”
- “Why did I hold on for so long?”
By the time you made that cut, the loss was insurmountable. And the trade turned around right after the cut. Let’s resign ourselves to one fact; Whatever the decision, it will always be the wrong one. So a simple lesson in this is that if we are going to make a decision, it WILL always be the wrong one. Cutting losses fast will return the trade. Cutting too late will continue the trend. What ever you decide, the market is going to take the mickey out of you. So to overcome this dilemma, ask yourself a simple question: “Is it better to make the wrong decision sooner or later?” The answer is obvious, isn’t it? I don’t know why anyone, in their right mind, would want to prolong an agony. If any decision you make is going to be the wrong one, then get it over and done with it quickly. Here’s another line of logic … You know that the moment you cut, the trade will return. So why don’t you cut it quickly and be ready for another entry as soon as the trade returns? (okay, that is speculative … but it works for the psychology!) At least it is obviously better than running the losses deeper. Likewise, you know that you are always going to take profit too early. So what can you do? Answer: Make the wrong decision early because making it too late will surely eat away your profits or could even end up with profits becoming losses. But in profit taking, you do have the advantage of taking some profit and leaving some to be greedy. It is always a good way to manage your profits. Take it when you have it but do it in stages. For example, if you have 10 lots long and they’re making some money, take half off the table when you reach your time/profit target. Let the remaining five lots run. The worst that can happen now is you can still get out at break-even if the trade turns against you. If the 5 remaining lots continue the profitable trend, when the trade hits a resistance, or if it stalls, take three more lots of the table and see what happens to the last two. At this point in time, you’ll have no fear and nothing but greed to manage. Should the remaining two lots reverse, your worst case scenario is that you can still get out at breakeven on those two lots and still get to keep the profits of the first eight lots. In a best case scenario, you are now in a position to put on a trailing stop and let the profits of the last two run to the sky. So avoid procrastinating on your trading decision. Make it quick, make it sensible and make it happen … make it sooner and never later. Moral of the story is that in Trading, it is NOT “better late than never” because in Trading, late is as good as never.
During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly.
Livermore sometimes did not follow his own rules strictly. He claimed that his lack of adherence to his own rules was the main reason for his losses after making his 1907 and 1929 fortunes.
The popular book Reminiscences of a Stock Operator, by Edwin Lefevre, reflects many of those lessons. Livermore himself wrote a less widely read book, "How to trade in stocks; the Livermore formula for combining time element and price". It was published in 1940, the same year he committed suicide.
"Cash was, is, and always will be - king. Always have cash in reserve. Cash is the ammunition in your gun. My biggest mistake was not in following this rule more often. Time is not money because there may be times when your money should be inactive... Often money that is just sitting can be later moved into the right situation and make a fortune. Patience-Patience-Patience. Patience was the key to success - Don't be in a hurry." - Jesse Livermore. How To Trade In Stocks, 1940."I have suggested to people who are interested in the stock market that they carry around a small notebook, keep notes on interesting general market information, and perhaps develop their own 
