Made a million dollars in a single day but lost everything. Reason: Overtrading.
Here’s a story of a maverick in the stock market, Jesse Livermore.
A journey of extreme highs and devastating lows, with overtrading playing a central role in his eventual downfall.
Livermore, born in 1877, showed an early aptitude for numbers and a keen interest in finance. His talent and unconventional approach to trading earned him nicknames like the Boy Plunger, the Great Bear of Wall Street, and the Lone Wolf of Wall Street.
Livermore’s early success came from his ability to read market patterns and make profitable trades.
However, his downfall began when he transitioned from the bucket shops, where he honed his skills, to the larger stage of Wall Street.
His constant need for action and a penchant for taking excessive risks, including averaging down losing positions, contributed to his financial setbacks.
Livermore’s pattern of making, losing, and regaining substantial fortunes continued through the early 1900s.
The 1907 stock market panic showcased his prowess, as he made over a million dollars in a single day.
Yet, subsequent ventures into commodities like cotton led to significant losses, marking the beginning of a cycle of financial ups and downs.
The peak of Livermore’s success was in 1929 when he correctly anticipated the market crash and profited immensely from short positions.
However, his overtrading habits and personal challenges, including multiple marriages and strained family relationships, took a toll on his mental and emotional well-being.
As Livermore faced bankruptcy for the second time in 1934, it became evident that overtrading had played a pivotal role in his financial downfall.
The constant need to recapture lost fortunes led to risky decisions and a failure to adhere to a disciplined trading strategy.
In the later stages of his life, Livermore’s personal life unraveled further, with a lot of personal problems & decline in his trading abilities.
The once-revered trader filed for bankruptcy again, and the constant pressures led him to a tragic end.
Without control over averaging down positions in an attempt to recover losses, traders end up losing everything.
Jesse Livermore’s story serves as a poignant reminder not to fall into the trap of overtrading.
So how can traders avoid overtrading? Consider these steps:
- Set stop-loss orders.
- Maintain a trading journal.
- Have a trading buddy.
You can also check out Trader’s Controls on the Dhan app for added discipline. Set alerts for heavy losses and overtrading by specifying the number of trades per day.
The Kill Switch feature adds an extra layer of control, temporarily locking the account for new orders until midnight.
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What measures do you take to not Overtrade?
One or the other pattern formed can indicate a trade entry.