An extract from Jesse Livermore

1. 7,397 Posts.
Am reading the book on Jesse Livermore
in pdf format thatMember cso1 put up the other day (thanks ),

this is an extract from that book on how Jesse made an entry into a stock ,
he sort of feels the water first which is quite clever ,
if he was wrong with the direction his losses would be less versus buying the whole parcel in one lot

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Let us suppose, for example, that I am buying some stock.
I'll buy two thousand shares at 110. If the stock goes up to 111after I buy it I am, at least temporarily, right in my operation, because it is a point higher; it shows me a profit.
Well, because I am right I go in and buy another two thousand shares. If the market is still rising I buy a third lot of two thousand shares.
Say the price goes to 114. I think it is enough for the time being. I now have a trading basis to work from.
I am long six thousand shares at an average of 111-3/4 and the stock is selling at 114. I won't buy any more just then.
I wait and see. I figure that at some stage of the rise there is goingto be a reaction.
I want to see how the market takes care of itself after that reaction.
It will probably react to where I got my third lot.
Say that after going higher it falls back to112-1/4, and then rallies. Well, just as it goes back to 113-3/4
I shoot an order to buy four thousand at the market of course.
Well, if I get that four thousand at 113-3/4 I know something is
wrong and I'll give a testing order that is, I'll sell one
thousand shares to see how the market takes it. But suppose that
of the order to buy the four thousand shares that I put in when
the price was 113-3/4 I get two thousand at 114 and five hundred
at 114-1/2 and the rest on the way up so that for the last five
hundred I pay 115-1/2. Then I know I am right. It is the way I
get the four thousand shares that tells me whether I am right in
buying that particular stock at that particular time for of
course I am working on the assumption that I have checked up
general conditions pretty well and they are bullish. I never
want to buy stocks too cheap or too easily.