The line of least resistance appears a total of 34 times in the stock trading memoirs. It is one of the core of Livermore's stock market operations and one of his main operating principles in the stock market. The stock traders' memoirs even have a special page to talk about it.

The importance of minimum resistance shows its importance. There are many explanations about the line of minimum resistance on the Internet . Many people interpret the direction of minimum resistance as the direction of the stock price breakthrough or the direction of the stock trend line.

I cannot say that this explanation is wrong because Memoirs of Stock Selling There are indeed similar descriptions in the book , but if we just stay at this level of understanding, we may miss all the key information in the stock selling memoir. Many details mentioned in the book may also confuse you because of Livermore. Sometimes , sometimes they choose the direction completely opposite to the line of least resistance.

I have said before that Livermore cannot become the king of trading if he only looks at the K-line chart. He can only become a betting man at best. The speculator boy who dominates today.

I will first introduce to you the most direct explanation of the line of least resistance in the memoirs of a stock operator. Then I will share my personal understanding of the line of least resistance . Finally, I will talk about my personal opinion on the line of least resistance.

Let’s first talk about the application method of the route in the most direct explanation of the principle of least resistance in the memoirs of a stock operator. The book gives an example. For example, when the stock price fluctuates between US$120 and US$130, the selling ratio is every time the stock price rises to around US$130.

Buy long and the price will fall back. However, when the stock price falls to $120, the resistance to the decline increases. Buying outperforms selling.

The stock market rebounds and short covering finally comes. One day, something increases the power of the rise or fall. That is, at $130, Buying beats selling for the first time , or selling beats buying at $120.

The price will break through the original boundary or movement limit and continue to rise or fall. Those investors who guessed the market direction wrongly must correct their mistakes immediately. This is a corrective trade.

It often pushes the stock price to the line of least resistance. When I talked about the dialectical relationship between long and short before, I also said that many rising markets are driven by the short-term retracement. In many cases, the focus of short-term games in the market is the competition for key points.

You can control your opponent's market. If the stop loss level penetrates the opponent's stop loss order, it will become your bullet. Let me give you an example.

I mentioned in the investment group before the market on November 2, 2023 that the short position was blown up. After the sale, there was a big wave of rising prices, which is this. It stands to reason that the stop-loss bullets for shorts will turn into bullets for bulls.

I generally don’t predict the market , but this wave of market conditions is highly likely to be foreseeable. However, I myself did not expect that the rise would be so rapid. Reflexivity can also be used here.

To explain that once short selling is proven to be wrong, the power of short selling will become the power of long selling. As the rise continues, more and more people will be attracted to join the long power. The stock market will accelerate its rise, so Liver Moore said that he likes to buy stocks at high prices to rise and sell stocks at low prices to fall.

He believes that stocks will not rise again because they have risen too much, nor will they continue to fall because they have fallen too much. Finally Livermore In the book, he introduced his own operating methods , that is, after waiting for the minimum line to appear, move forward when the quotation indicates an upward trend in the stock price, and sell when the quotation indicates a downward trend in the price. As the price trend line continues to rise , it gradually increases its position initially.

He added 1/5 of the capital to the position. If there is no profit, he cannot add the position because obviously the point where he started buying is wrong. Starting from the wrong point is generally not profitable, so it is not the right time for a big trade.

Once hinted that the price The rising quote tape is not necessarily lying . Maybe now he is just suggesting that the time has not come yet. He introduces his cotton trading theory by saying that if he decides to buy 40,000 to 50,000 bales, he will first determine that the line of least resistance is in an upward trend .

He will After buying 10,000 bales, if the market price rises 10 points from the initial price , he will buy another 10,000 bales. If the market price continues to rise and rises by 20 points in total, he will buy another 20,000 bales. The quality of the package will be damaged and the position will be full.

However, if there is a loss in the book after the initial purchase of 20,000 bales, he will immediately close the position. The result of adhering to this trading philosophy is that it will have a place every time the price fluctuates significantly. In the process of adding to the position, it will be full.

Some trial trades may bring losses of 50,000 to 60,000 US dollars. It may seem like a big price to pay , but making up for the 50,000 US dollars in losses caused by the trial position after the real large price fluctuations begin is just a blink of an eye . Oh my God, I published an article introducing Soros' three strategies.

You will find that Soros's operating philosophy is very similar to Livermore's. He also pays attention to trial positions. His style is to put forward hypotheses and first establish trial and error positions.

Wait for the market to verify whether the hypothesis is correct and conduct in-depth research. If the market trend is consistent with expectations, then increase the position to amplify the profits. I think one of the biggest differences in the operating styles of the two people is their attitude towards risk.

Soros always puts confidentiality first. He said that if an unexpected situation occurs, what I always remember is that survival is the first priority. I care very much about the necessity of survival and never take the risk of being shattered.

Therefore, he achieved long-term stable profits , but at the same time, he could not obtain anything like Livermore's astonishing rate of return. On the other hand, although Livermore was once extremely brilliant , it only takes one to go bankrupt. I think this is the most basic understanding of the line of least resistance , because everyone can see it at a glance.

I know it in Memoirs of a Stock Operator. Livermore told several stories. My favorite is the story of old Partridge.

His sentence "This is a bull market" seems to have exhausted the mysteries of the stock market. My second favorite story is The following is a story about Deacon White. Deacon White was one of the biggest stock traders on Wall Street at that time.

He was a very kind old man, extremely smart and courageous. One day, a man who knew Kendi hurried into his office and looked at him with a look on his face. He excitedly said to him, Kendi, " Did you say that as soon as I have good news, I will tell you right away?

If you think it will be useful , let me buy a few hundred shares. " He stopped and took a breath, waiting for the other party's reply . Kendi used his usual monotonous expression.

Yu Shen looked at him with an expression on his face. I'm not sure if I really said that, but if your news is useful, I'm willing to pay you some. What I brought you is useful news, so that's good.

Kendi responded to him very gently, which made the reporter muster up more courage. In order to prevent others from hearing him, Kendi moved slightly closer and whispered, Havermeyer is buying shares of the American Sugar Company , right? Deacon He asked very calmly.

The messenger was a little unhappy when he heard his reaction. Then he emphasized again, "Yes, he has bought a full position. Are you sure?

" Dickon asked Dicken again. My news can never be fake. Those insiders are trying their best now.

There are many ways to buy as much as you want. I guess this must have something to do with tariffs. Ordinary stocks will definitely make a lot of money, and the income will exceed that of wealthy stocks.

In other words , you can earn at least 30 points with one investment. Do you really think so? Deakin passed Looking at his old-fashioned glasses, this messenger used to use these glasses to check quotes.

I really think so. No, I didn't just speculate out of thin air. This is what I know.

It's true. What 's going on? Deacon Havermeyer and his friends are buying American Sugar stock.

They won't stop until they make a profit of 40 points, and I wouldn't be surprised if the stock market goes up before they have even filled up their positions. None of their trades in the stock market. Months ago, it was so frequent.

He was buying the stock of the American company, right? He must have been absentmindedly repeating " Buy, oh, they are rushing in, rushing in before the stock price rises due to their large purchases , so what? " He only replied with a few words, which completely made the messenger anxious.

He said, Deacon , this is definitely good news, it won’t be false, right? Yes, this news is definitely valuable. Do you want to use it?

I will use it when I want to use it . The person asked with some suspicion, "Can I use it now? " Then Deacon shouted to Frank.

This was the most astute broker around him. Frank was in the next room at the time. Frank responded, "Come on, Kendi.

Now go to the exchange and sell 10,000 shares of American Sugar. " The company's stock was sold. The reporter shouted excitedly.

Frank was on his way to the exchange when he heard the excited shout and had to stop. Yes, Dicken responded calmly, but I just told you Havermey. I was buying.

I knew Dicken was still calm , so he turned around and said to the broker, Frank, go quickly . The broker hurriedly ran to execute the trading order. At this time, the messenger's face was flushed, and he suddenly became furious.

I specially brought a piece of great good news. You tell you when your friends think you are an upright person. I hope you will adopt this message.

I have already adopted it. Deacon interrupted calmly, but I just told you that the Havermeyer gang is buying in. Yes, I know them.

Buying, I know they're buying Buying, I'm talking about buying, screamed the ticker, I know you're talking about buying, Deacon said firmly, standing by the ticker looking at the paper bag , but you're selling now. Dickon nodded. He stopped talking and looked at the paper bag attentively.

The messenger also came closer to see what Dickon was looking at . After all, he was always so cunning. He was looking over Dickon's shoulder .

A clerk came over with a piece of paper. It was obvious that Frank had sent the transaction report back , but he didn't even look at it . He had already seen the results of his transaction on the paper bag , so he told the clerk to tell him to sell again.

10,000 shares of American Sugar stock, Deacon. "I swear they are really buying. Did Mr Havermeyer tell you that himself?

" Deacon asked calmly. " Of course not. " He never told anyone anything or even helped.

Friends make a penny , but I'm sure this news is true. Friends, don't be too excited. Dickon raised a hand and looked at the paper bag seriously to express his sincerity and said in one voice: " I would never do this if I knew you would do the opposite.

" It's a waste of each other's time , but I won't be happy if you suffer heavy losses, Deacon. I feel sorry for you. If you don't mind, I will go elsewhere to trade with this news.

I am trading with your news. I have some knowledge of the market. I may not know as much as you and your friend Harvard, but I still know a little bit about it.

My past experience tells me that my current approach to your message is the wisest. If someone has been on Wall Street for many years like me, then He will definitely be grateful to those who sincerely feel sorry for him . Calm down, my friend.

The violent man looked at Dickon intently. He has high respect for Dickon's judgment and courage. Soon the clerk came in again and asked him .

Deacon handed over a transaction report. Deacon looked at the report and said, now you go and buy 30,000 shares of American Sugar Company. The clerk left in a hurry with 30,000 shares.

Bao Xingren looked at the old fox and muttered "DI" . Ken gently explained that I believe what you said is true , but even if I heard Havermeyer telling you the news with my own ears , I would take the same approach . Is the Havermeyer gang really buying as you said?

There is only one way to confirm the stock , and that is to use what I just did to verify that the first batch of 10,000 shares was very easy to sell, but it is not enough to make a conclusion . The second batch of 10,000 shares was also swallowed up by the market , and the market continues. The 20,000 shares that rose have been bought, which shows that someone really wants to take over all the stocks in the market .

It doesn't matter who bought it, so I covered the short position and went long 10,000 shares . As of now, what you have brought It is indeed good news. How good is it?

The reporter asked, you can get 500 shares of Deakin at the price of my 10,000 shares. Goodbye, friend, please calm down next time. The reporter said, Deacon, can you help me when you sell the stock?

I also sold. I am indeed not as good at trading as I thought. The reason I like this story better is that at first you will think it is a story about insider trading , because the memoirs of stock traders use a lot of space to talk about the harm of insider trading.

It is harmful to oneself , but in fact this is not a simple counter-production story based on gossip . Many people have a misunderstanding about contrarian investing. They think that contrarian investors go against everyone and oppose everything .

But in fact, opposing everything is another manifestation of sticking to the rules. Really smart people are often mavericks. They insist on independent thinking and take matters into their own hands to sort out the ins and outs of things.

Contrarian investors will think independently based on the actual situation and can withstand the pressure of blindly following the crowd. The great thing about Deacon White is that he has the inside information. He did not express opposition or approval to the message , but he personally tested the effectiveness of the message in his own way.

Someone may ask what the story of Deacon White has to do with the line of least resistance . The answer is actually very simple. The direction with strong absorption ability is the least.

The direction of resistance: If the market can easily absorb huge selling orders, the line of least resistance is upward. If the market can easily absorb huge buying orders, the line of least resistance is downward. Soros also expressed a similar view.

He said that he would feel it first. Let’s talk about what the market is like. I want to think about the feeling of being a seller.

If selling is easy , he would be more willing to be a buyer because the side with the ability to absorb in the market represents the strong side , which is the direction of least resistance . It may not necessarily be the direction of the stock price breakthrough. There was a very classic example at the beginning of last year.

On April 10, 2023, the scale of short selling in U. S. stocks reached an 11-year high , but the stock price has been trading sideways and there has been a false breakout since then.

It quickly pulled back again. This is also the reason why I decisively chose to buy the position as I explained in the April live offer video. With such a large scale of short selling , sideways trading is a strong sign that the market has a very strong ability to absorb selling orders .

A mysterious force is taking over the chips in the market. You actually don’t need to care about who this force is , because you will most likely never know. Next comes a more confusing part of the book .

Since the line of least resistance is so important, what should we do? Should a trend trader always follow the line of least resistance? The answer given by Livermore is no , although he does not explicitly say so in the book.

This is also where the book Memoirs of a Stock Operator is sometimes confusing. I don’t know if you still remember that in the third video of Livermore, I told the story of his successful turnaround from a million-dollar debt. I omitted one detail when I talked about how he converted from long to short positions and how to close short positions.

Because if I explained it at the time, many people might have fainted. He was doing his best to short the stock market at the time. Suddenly one day, bad news came out of the market, and the stock market plummeted.

He took advantage of the trend and chose to close all his short positions. He said that this was because he was not The best time to close a position with a loss of book profits means that he chose to close his short position when the stock price accelerated along the line of least resistance. At the same time, he also said something that everyone should understand carefully.

He said that as a 30-year-old As an operator with many years of experience, my experience tells me that such unexpected events usually develop along the line of least resistance. This sentence has two meanings. First , unexpected events usually develop along the line of least resistance.

Translated into vernacular, it means that when we do something good or bad because of When the news is bought along the line of least resistance, it is actually too late. Second, when an unexpected event occurs, although the stock price is still running along the line of least resistance , it is likely to mean a reversal of the trend because the stock is being transferred from the hands of the main players to retail investors. Here we can see that Deacon White and Livermore made completely different choices when facing the line of least resistance.

We need to understand what is the difference that caused their different choices. If we analyze that the two of them operate the same way . The point is that both operations were conducted when the market had huge absorption capacity.

I think there are two main differences that caused their different operations. The first is the news aspect. Deacon White obtained inside information without the market knowing it and used it on his own.

This method verified the strong purchasing power of the market , that is, determined the direction of least resistance. He found that there was a powerful force in the market secretly buying . This is fundamentally different from the rise driven by market sentiment driven by the news .

We all know that emotions come and go quickly, and Livermore chose to operate in the opposite direction to the line of least resistance because he did not determine the line of least resistance based on the news . When the news was announced, he had already made huge profits. Taking profits is the safest for him.

He always emphasizes not to make the last penny in the market. The second difference is the chip side. If there is a clear line of least resistance in the market but there is no news related to it , then We have to think about who is taking over this market.

In fact, we all know in our hearts that the leader of this mysterious force will most likely not be retail investors , because most retail investors cannot form a joint force without the support of favorable factors. And retail investors are more likely to be hesitant . In fact, Kostolani also expressed a similar point of view.

The rise and fall of stocks depends to a large extent on whose hands the chips are . In addition, we also need to understand Livermore’s There are two key words in his operating style: one is high leverage, and the other is floating silver positions. This means that he cannot withstand a large retracement , so when the profits are already very impressive, there is another problem in the market caused by unexpected events.

Decisively choosing to take profits when you have strong absorptive ability is undoubtedly a correct decision. In addition, we often say that Livermore is better at short selling than long . I think it is mainly because panic often breaks out faster.

This comes from human beings. The instinctive fear of uncertainty , but fear often comes and goes quickly, so Livermore's operation will be more effective when shorting . Of course, I just said that no strategy can be effective forever.

I will give the example here. A practical example of the 2008 financial crisis will give you a more realistic experience of this strategy. On September 15, 2008, the American investment bank Linman Brothers filed for bankruptcy.

This day is regarded as the beginning of the full-scale financial crisis. But if we look at the United States Do you still think the crisis started on September 15th? In fact, the S &P 500 has been falling for a year from its highest point in October 2007 , and the decline has been as high as 21% .

Simply based on the shape The line of least resistance, the S&P 500, has already been in a very obvious downward trend. After the Lehman Brothers explosion, the stock market fell sharply for three consecutive weeks. So we can say that the best short-covering position is obviously not when the bankruptcy of Lehman Brothers breaks out, but when panic spreads rapidly after the explosion.

But if we look at the weekly K-line, it is huge after the largest weekly decline. The weekly rebound of a highly leveraged trader like Livermore may cause him to liquidate his position, so he must leave the market before the panic completely breaks out. We can also see that this wave of decline and The bottom of this crisis has not been reached , but the best time for trend trading has passed.

What followed was nearly a year of sideways consolidation. I often recommend that everyone not to read the news and speculate in stocks , mainly because most people cannot grasp the market sentiment in time. Changes: Take the 2008 financial crisis as an example.

Although the line of least resistance at this time was not led by determined funds, it is also true that the market has strong absorption capacity at this time. In fact , you can make money along the line of least resistance at this time because At this time, market sentiment will reach a peak. There is such a strategy in the stock market : when others are panic, I will be more panic, and when others are greedy, I will be more greedy.

As a trend trader, it is okay to do this. The biggest difficulty is how to grasp the opportunity and the market trend. The length of duration.

The duration of this opportunity may be weeks, days , or even hours. How to grasp market sentiment and how to choose the timing to take profits is very difficult, so it is not easy for ordinary people to use this method. Making money actually ends here.

We have already talked about the line of least resistance. Here is a little digression. Livermore talked about how he manipulated stock prices in the book .

It often appeared in the comment area of previous Livermore videos. There is such a voice that it is very easy for the main force to manipulate the stock price without taking into account the emotions of the market , as if they can just make money lying down. But if it were so easy, large fund managers would not have performance pressure, and Livermore would not It will go bankrupt.

Livermore also once ran a joint capital pool and did stock distribution. His task is to raise the stock price and then sell it. But whether the target company's intrinsic value can be achieved is on the one hand, and more importantly, the shareholders'.

The desire to buy is the direction of least resistance. He said that when he was manipulating the stock price, if his buying behavior did not make the stock price rise, he would stop buying and then switch to selling to make the stock price fall. He said that I have repeatedly emphasized that during the operation I will never forget that I am a stock trader.

The problems I face are the same as those I face as a trader. When the manipulator cannot control the development of the stock, all operations are over . When you want to operate When the stock does not develop as expected, you should stop the operation immediately .

Do not reason with the quotation tape , and do not try to make back profits . You can even escape at a small cost. Do not hesitate to exit immediately .

Therefore, even those who manipulate the stock price cannot talk to you. Even if you go against the general trend , you cannot compete with the direction of least resistance. Finally, there is no perfect strategy in the stock market.

Everyone must always be wary of risks. I wish everyone good luck in your investment. I am Wuyi.

See you next time.