Jessie Livermore’s Analysis of “Speculative Cycle”

“THE SPECULATIVE CYCLE”

This article includes all the essence of the stock market and Livermore followed this course very carefully, in fact he gave the subject matter to this basic stock market experience, which he called the "THE SPECULATIVE CYCLE."

He captures the most valuable stock market knowledge and wisdom that focus on this cycle. To understand this and to capture the importance of the "interior" is to move on to the path of potential speculative stock market returns.

Now I'm going to explain the speculative cycle of this masterpiece.

Basic Concept

1 - First, keep in mind that price changes must be related to changes in the trading volume. These two are closely related.

2 - Remember in market behavior, deviations from universally recognized basic patterns are as meaningful and important as they are, therefore: check for matches and deviations and do not underestimate deviations

3 - The basic patterns associated with price changes and trading volume changes are as follows:

Price up, volume up, market up, etc.

Price down, volume down, market up, etc.

In other words: if prices and volumes fluctuate similarly - rising or falling - the market will then record a higher price level.

The rationale for this is clear: Price increase requires a decrease in the buying tax (because the volume increases) and so prices go up, whereas price falling needs an increase in the selling pressure (because the volume decreases), so prices go up.

4 - All deviations from the above pattern shows what is important. Clearly, the importance of opposition, which can be shown below. When the price goes down:

Price up, volume down, market down, market down, etc.

Price down, Volume up, Market down, etc.

Again, the rationale is very clear: Price increases lead to a decrease in buying (because the volume decreases), so the price falls. On the contrary, because the price falling increases the selling pressure (because the volume increases), the price falls.

5 - The only stocks that speculators are interested in are active stocks, which have a clear volume, stand out, and are most distinctive.

6 - The best time to be interested in such stocks is when they begin to be active, the trading volume is clear, conspicuous, and most prominent

7 - With the above in mind, let's look at the speculative chart of Livermore...

Livermore’s “Speculative Cycle” A Stock Chart

Speculative Cycle

Share A gained Livermore's attention due to the sudden interest in the market due to large trading volumes

Livermore observed Stock A and he noted that at point B, the price increase accompanied by a volume increase was in line with the existing practice, which aligns with the accepted formula.

Livermore observed this stock more closely and recognized that this stock fell at point C and this reaction was accompanied by a drop in volume, which is also consistent with the desired pattern.

Based on this evidence, Livermore has decided to act, and the only action was to buy.

The buying done by Livermore is not a whole, but a part, he does not buy all of the shares he has decided to trade in. For now, he wants to put them in and out, he is sure but not yet completely sure while he waits for the market action to be fully convinced: This means, he can set some expectation, have interest, thereby predicting that there will be some profit.

Livermore's prediction has been confirmed at points D and E, and the familiar up-up and down-down is equally evident at point D.

Now there is no doubt in Livermore's mind that this stock will rise steeply, A shares will be the market leader, even if the collection cylinder for all practical purposes is not fully finished.

Now Livermore decides to keep it and buys all the positions he wants.

As he correctly predicted, cylinders are destined to last a little longer, and now their mouths are wider than ever before. In F and G, the basic formula has been confirmed once more: rise up, fall down

Now Livermore expects a steep, fierce rise in market value soon-- it will be steep, fierce, impressive, and huge.

Livermore was proved right by historical experience.

A stocks moved from G to H and this move is explained by all the important features: a rise.

Shares A on the basis of such evidence should still rise.

H to I, I to J, and once more, the principles fit.

At point J, Livermore feels a sense of crisis in this stock, the movement from I to J was small and short. i.e. it is completely different from the movement from G to H to J.

At point J, Livermore sells part of his contract in anticipation of a rebound and his prediction was right. The stock fell from J to K, and what made this decline especially important was the fact that it involved a deviation of the pattern: the volume increased with the price drop.

There can be no more doubt about it. The speculative cycle has entered a phase of decline, contraction, and warning. Livermore's selling again. He expected a rebound to the rebound and was right. The stock has gone up to L and once again it is clear that the pattern deviates.

Now it's over. Livermore cashed in all of his holdings.

At point L, it was confirmed that Stock A could only move with one shot, and Livermore revealed himself as a good expert, given the title of Indomitable speculator, is this insight and audacity.

At point L, Livermore also deals in a public sale, now he is sure that the shot position is the right one, this stock will fall considerably. Given the 40 point rise, A shares will fall at least 20 to 30 points-- 20 is certain, 30 is almost certain. Now he sells in one transaction, and there is no sale in a sale.

When you make a public sale, you must accept the possibility and risk as a whole, it is like everything or nothing, you must be right from the start, there is no tomorrow at the auction, and the mailman rings the bell only once: right, wrong or wrong from the beginning of the transaction itself.

He was right, stock A went down from L to M and M to N, and deviations continued.

When the market falls, volume growth is a clear indication that the downward trend is not depleted and therefore it is bound to persist.

Of course, Livermore knew all that, and I talked about all that movement, and whether they're up or down, it's actually two movements: First is physiological movement, which has been proven historically based on statistical factors. Second, this is a pathological one, an exaggeration, an expansion, an aberration of physiological things.

Livermore has looked carefully at the market and it is difficult to distinguish physiological parts from pathology...but it is difficult to do it...However, in the eyes of an expert, looking at the volume, comparing price changes with volume changes, the laws of agreement and deviation... you can do it.

Livermore has finished his shot position, now the speculative cycle is complete.

For a while, stock A will fall once again, entering an uncertain period of quiet, inert, uninterested, insensitive and unattractive stocks...but, will eventually wake up again as a speculatively promising potential leader.

This is an analysis of the market cycle.

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