Patience as a position: waiting for confirmation

Education only, not financial advice. See the full disclaimer.

About the sources. Jesse Livermore (1877–1940) was a US stock speculator. How to Trade in Stocks (1940) is the book published under his own name, and it is the only Livermore source used here. Reminiscences of a Stock Operator (1923) is a different book: journalist Edwin Lefèvre wrote it as a story narrated by a fictional trader, Larry Livingston, who is widely understood to be modeled on Livermore. We don’t quote that character as if he were Livermore. The bold house rules below are Ratigan Capital adaptations, not historical quotes, and nothing here claims to describe how Livermore actually traded.

What you will learn

• Livermore’s distinction between being right in opinion and being right in timing.
• How to define a “pivotal point” style trigger in your own words.
• The cost of waiting, and when patience becomes paralysis.

The idea

In How to Trade in Stocks, Livermore repeatedly separates opinion from action. In the chapter “When Does a Stock Act Right?” he describes traders who are eventually correct about a stock yet lose money because they act too soon, then give up just before the move. In “The Pivotal Point” he says, in substance, that his best trades came when he waited for price to reach a level that confirmed the move, and that when he lost patience and traded in between, he tended to lose.

Ratigan Capital’s house rule Patience as a Position adapts this: being flat while you wait for your trigger is a position you hold on purpose.

The mechanism

An opinion (“this should go higher”) has no defined entry, no invalidation and no time frame. A trigger (“a daily close above the prior swing high on above-average volume”) does. Waiting for the trigger does three things: it filters some ideas that never confirm, it ties your entry to a level that also gives you a logical invalidation, and it reduces the number of impulsive trades.

The cost: you enter later and at a worse price than someone who anticipated, and some confirmations fail immediately (see the planned lesson on liquidity sweeps and failed moves).

IF–THEN example (hypothetical, educational)

Opinion: a stock trading in a range between 40 and 45 may break higher.

• IF price is still inside the range, THEN I do nothing and log “waiting, trigger not met.”
• IF price closes above 45 per my written rule, THEN the trade is eligible, with the stop placed where the breakout idea is invalid (for example back inside the range), sized per position sizing.
• IF I feel the urge to buy at 43 “before it goes,” THEN I log it as an impatience entry and do not take it.

Limitations

• Confirmation is not certainty. Breakouts fail, and gaps can jump past both trigger and stop.
• Waiting can become an excuse never to act. A trigger you never accept is just another opinion.
• Livermore wrote about 1900s–1930s US stocks under very different market rules, costs and information speed. Treat his ideas as hypotheses to test, not settled findings.

Exercise (paper journal)

1. Write down three current market opinions you hold.
2. For each, write a trigger that would confirm it and a level that would prove it wrong. If you cannot, label it “opinion only.”
3. Over the next two weeks, observe only. Note whether each trigger fired, and what happened afterward. No trades required.
4. Record how often you felt the urge to act before the trigger.

Check your understanding

What is the main cost of waiting for confirmation?

A later, usually worse entry price, plus some confirmations that fail. It is a trade-off, not free protection.

Is "I think this will rally" a trade plan?

No. It lacks a trigger, invalidation level and size. It is an opinion until those are written.

Takeaway

Write the trigger before you form the urge. Until it fires, flat is your position.

Sources

• Jesse L. Livermore, How to Trade in Stocks: The Livermore Formula for Combining Time Element and Price (New York: Duell, Sloan & Pearce, 1940). Bibliographic record of a 2017 reprint at the Internet Archive (borrow-only). Our research assistant checked the chapter references below against a digitized copy of the 1940 text. We don’t link that copy because we couldn’t confirm where it came from.
• Chapters used: Chapter II, “When Does a Stock Act Right?”, and Chapter V, “The Pivotal Point.” Paraphrased.
• Context on the 1923 fictionalized account: Edwin Lefèvre, Reminiscences of a Stock Operator, Project Gutenberg #60979 (public domain in the USA). Not used as a source of Livermore’s own words.