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Throught the Years - Stories of Success, Win and Loss in the Stock Market
People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this earth. This is one of the most fundamental rules of stock market success. We would like to introduce our readers to the stories of three of the most prominent figures in the stock market of all time, starting with the early days of the 19th century and ending with a contemporary stock market entrepreneur. These are all stories about fabulous wealth, risk taking, intelligence and competitive spirit.
1. Jesse Livermore - Probably the Greatest Stock Trader who Ever Lived
Jesse L. Livermore is a legendary stock trader and one of the success models that helped with the development and popularization of stock trading as a whole. He was nicknamed "boy plunger" at an early age due to his aggressive risk taking through large stock trades. His claim to fame was amassing fortunes on Wall Street during the crash of 1929. Even through all his successes trading the stock market, Livermore was unfortunately also known to have a difficult time maintaining personal relationships and ultimately lost his entire fortune.
Success formula
His career was impressive and fascinating; he started off as a board boy in the gambling industry only to end up becoming Wall Street's most influential trader fifteen years later. By the age of 15, Jesse Livermore had already made $1000 (a rather important amount of money for 1890) by investing in the stock market solely through hunches and assumptions.
Livermore is widely known to have made no less than $3,000,000 in one day during the financial market meltdown of October 1929, crashing the market into oblivion by short-selling stocks.
What happened to his fortune:
Enjoying a very lavish lifestyle and reportedly being very unstable both mentally and professionally, Jesse Livermore had in fact gone bankrupt and broke three times in his career. He made an immense fortune right before the great depression, but also lost money with ease. He owned several mansions around the world, fully staffed with servants and a fleet of limousines and he was quick to renounce his life partners for new women he met. In a moment of despair and depression, he shot himself dead in a hotel room in Manhattan. He left behind $5,000,000 worth of cash, assets and stock and a good bye note addressed to his third and last wife. Ironically, she herself had married four times before to husbands who all committed suicide.
Jesse Livermore in figures:
$100 million - Jesse Livermore was worth that amount of money at the peak of his career in 1929. In today's money that would be close to $13.7 billion; 3 - of his direct descendants (daughter, son and grandchild) ended their lives prematurely in poisonous gas suicides; 14 - the genius investor left his father's household and got his very first job at that age.
2. Nicolas Darvas - Professional Dancer and Self-Taught Investor
One of the most prominent and controversial figures of the stock market trading scene in the 1950s, Nicolas Darvas and his story are a referential point in the history of this business. Starting off as a world-famous dancer, he ended up making a seven figure fortune in a matter of years, being the center of attention for publications like Time Magazine.
Success formula
Nicolas Darvas was often described as unusually ambitious and strong-willed so although he started off ignorant, but he made sure he didn't stay that way. Before he ever invested any money into the stock market, he spent his years on the road from one dancing gig to another reading and researching the various aspects of the business. Later on, when he started investing, he would gather all the available information on the company who's shares he was about to buy or sell. His famous and innovative stock selection method was called the BOX theory. He considered a stock price wave as a series of boxes and waited at the time when the stock price was "confined" in a box and only bought when the price rose out of the box. He simultaneously set a stop-loss just under this trade price. Recommended read: the original 1960 Time article about Nicolas Darvas.
What happened to his fortune:
Towards the end of his amazing life as a stock market trader, Nicolas Darvas invested in other fields, such as the fashion industry and real estate, which in the early 1970s was a very wise thing to do. He died a rich man in 1977,after retaining and increasing his wealth in both stock trading and other business ventures.
Nicolas Darvas in figures:
23 - was the age when Nicolas Darvas fled communist Hungary with a fake visa and went on to become a successful dancer; $2,450,000.00 - the amount of money he made in 18 months starting in 1957 with a $10,000 investment; 5 - is the number of specialty advice books he wrote between 1960 and 1977 (the year of his death), making him not only a very successful trader, but one of the most sought after authors in the stock market business.
3. Richard Dennis - Back from the Bottom of the Pit
A man of his own trading style, Richard Dennis is a modern superstar on the stock market scene. His stories of success and failure have been followed closely by millions of people interested in the stock market and his legendary accomplishments have earned him a spot in the trading hall of fame. His rather scholarly and scientific way of working the market has turned into innovative projects like the turtles, a group of young investors working together, making and controlling millions.
Success formula
Starting off with $1,600 of borrowed money, he turned that amount into a whopping $200,000,000 in a matter of ten years. However, he reportedly lost much more than that when he started trading with his clients' money; the financial and emotional pain forced him to retire for several years.
In 1996 he came back to the stock market and commodity trading business with a new approach, using complicated computer programs and databases and making predictions and investments based on odds; instead of thoughts, theories and impulses. He's also famous for believing that it doesn't take exceptional talent to succeed in the business, but rather proper training and discipline, a point he proved in every possible aspect by selecting two groups of people called the Turtles and teaching them the system. It turned out that his learners could turn one million into several in a matter of years.
What happened to his fortune:
Like most people at the top of the trading business, Dennis has made and lost considerable fortunes. He's been known to support unpopular causes like marijuana legalization and has declared that he has given away a little over $30 million in supporting violence victims shelters and political campaigns. The amount of money he controls nowadays is below the $100 million mark.
Richard Dennis in figures:
$8 million - the amount of money Richard Dennis lost in one day as a consequence of a bad decision; 111% - was the profit that Richard Dennis turned for his investments in 1996, making him the top performing investment advisor at the time; $400 - was the initial amount of money Richard Dennis had available for his first trades.
So there you have it. Stock market success is not exactly winning the lottery, although it's obvious that a fair amount of luck is required. But training, determination and skills are crucial for success. Many people that get into this business nowadays use computer software that specializes in market statistics, analysis and predictions. Perhaps a good way to practice trading the market is heading over to TradingSim, a very informative and modern NASDAQ trading tool. Our success stories have only proven that raising fabulous wealth is a possibility for anyone.
October 9, 2007 marked the top in the market. Taking that high and counting the days to the next low and then taking a 38.2 of those days and adding the days out to the future have found important turns days in the market plus or minus two days. We have marked on the chart those turn dates. From the October 2007 high to the March 2009 low took 355 days. Taking 38.2% of 355 comes in 136 day and add that to the March low projects out to 9/18 (last Friday for a turn date). From the March low to the July low took 86 days and 61.8% of 86 day is 53 days and add 53 to 86 projects a turn date of 9/24, this coming Thursday. The SPY is at gap resistance (107 to 109 on SPY) and there are Fibonacci turns dates starting from 9/18 to 9/24 plus or minus two days. This week could be an important week. We are short the SPX at 883.92.
An Elliott Wave five count down to the March low shows the bigger trend is down. The direction of the true trend goes in an Elliott Wave five count and consolidation goes in a ABC (or three count). Currently XLF is working on the ABC consolidation up and once completed should start the next impulse wave down. The ABC count up is taking the form on a bearish “Rising Wedge”. We have identified two previous “Rising Wedge” pattern, one in 2007 and the other in 2008. “Rising Wedge” have minimum downside targets to where they began and therefore it appear the March low of 2009 will be visited again. However, “Rising Wedges” can go much lower then the previous low like the ones in 2007 and 2008. First support come in near 11 on XLF and next support down is the March low near 6 and beyond that who knows. The “C” leg should end near current levels. We are short the XLF today at 14.30.
Below is the Bullish Percent index for The Gold Miners index. Reliable tops in the Gold Miners have formed when the RSI reaches above 70 and turns down and with the Bullish Percent index has a bearish crossover of it’s 10 Moving average. This conditions was triggered yesterday. This potential pull back could push GDX down to the apex of the Triangle (near 40 on GDX) it broke out of in early September. We will look for a buy signal in GDX on the next pull back which could come in near 40 and at 960 on gold. We are very bullish on the bigger timeframes for Gold stocks and we will keep our core positions. Bought GLD on 4/24/09 Sold 8/14/09 at 93.78 gain 5.4%.
Gold is back in the spot light as it flirts with the $1000 per ounce level. This closely watched commodity looks as thought it will rocket higher because of the multiple trading time frames indicating breakouts.
I mainly focus is on trading the daily chart but I always refer back to the longer time frames which are the weekly and monthly charts. Knowing the momentum and trend on these long term trading charts allow me to identify the strength of the rallies and sell offs on the daily chart. I use this analysis for determining how large of a position to take, and where to place profit targets and stop loss levels.
Trading gold stocks does provide explosive opportunities when the price of gold moves. The past couple years I have only been focusing on trading gold to the long side because the overall long term trend is up. Trading with the longer term trend always improves the odds of winning the trade. I will short GLD or GDX funds for an intraday trade using my simple Kitco gold overlay Day Trading Strategy. I have posted this strategy a couple of times on the internet, if you want to read more about it.
Below is my analysis explaining the price action of gold stocks on the daily, weekly and monthly charts. I also a listed the US and Canadian funds which I trade.
HUI Gold Stocks Index - Daily Chart – Short Term
The daily chart of the HUI clearly shows buy and sell signals, which were generated in the past 2 months. Using resistance trend lines for breakout levels is very important. I also use pivot lows to draw and connect my support trend lines, which allow me to calculate down side risk and buy signals. The recent breakout is very strong and that is because the weekly and monthly charts are showing a breakout to the upside triggering longer term traders/investors to buy.
Daily chart buy and sell signals are for short term trades which last between 2-20 trading days. My focus is to lock in 1-5% gains but in a strong trend I can pocket 10-20% return in a short period of time.
HUI Gold Stocks Index - Weekly Chart – Intermediate Term
Weekly chart patterns and breakouts provide a much larger move in general so watching this chart is crucial for long term success. Following the weekly chart goes for trading every investment vehicle whether you are trading stocks, futures, FOREX etc...
This chart generated a buy signal in December of 2008, which we took advantage of. And just 2 weeks ago it gave us another buy signal. Again using my simple trading strategy which involves trend lines and the MACD momentum indicator, we are able to establish clear buy and sell signals.
HUI Gold Stocks Index - Monthly Chart – Long Term
Long term investors will use the monthly chart for timing their buy and sell signals because once the momentum has shifted direction it tends to last for several months if not years. I do not focus on trading these long term signals but I use them to help me know the momentum (power) of the next possible breakout. This also helps me in deciding whether to scale out on rallies with some of my position locking in some profit and buying back on dips, while leaving a core position incase the price continues to rally.
The monthly chart of the HUI shows a breakout this month and if the price can hold until Oct we will have a complete long term buy signal. I use the MACD for momentum and the HUI:GLD ratio to confirm the breakout which puts the odds more in my favor.
Precious Metals Funds for Trading Gold and Silver Moves – Daily Chart
Here is a list of the precious metals funds I trade on a regular basis. I trade both US and Canadian funds. Because I am based in Canada I focus on Canadian gold stocks and gold funds when there are intermediate/long term signals which I trade in my retirement account.
The funds I trade are GLD (gold bullion), GDX (gold miner stocks), SLV (Silver Bullion), XGD.TO (Canadian Gold Stocks), CEF/A.TO (Canadian Gold & Silver Bullion). If you look at a comparison chart you will see some funds provide much larger moves than others. In general I like to own a bullion fund and a precious metal stock fund so that I get the best of both worlds.
My Gold Stocks Newsletter Trading Conclusion:
In short, Gold and gold stocks are on fire. The next 13 trading days are very important for gold as it battles to breakout above the $1000 - $1033 level which is the 2008 high. With gold trading at this MAJOR resistance level also known as a "Pivot Point", the risk level is higher for traders. The odds are pointing to higher prices but we must recognize that price action becomes volatile and fast moving. We could see the price breakout and rally to the $1500 level within months which is what are currently positioned for. But we must realize that gold could create a double top and sell off very quickly which is why we have stops in place to protect us.
So those of you who are long be sure to lock in some profit and be ready for some wild price action in the coming weeks.
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Chris Vermeulen
