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HISTORICAL PERSPECTIVE The Line of Least Resistance Jesse Livermore and the Nature of Momentum |
He was fourteen years old the first time he broke the bucket shops.
Jesse Livermore had figured out something the other gamblers hadn't. He wasn't predicting where stocks would go. He was reading where they were already going—watching the tape, sensing the momentum, and placing his bet just as the move began. By the time he was fifteen, the bucket shops in Boston had banned him. He was winning too often.
That was 1892. Over the next four decades, Livermore would make and lose several fortunes. He called the Panic of 1907 before it happened. He shorted the market before the 1929 crash and walked away with roughly $100 million—the equivalent of billions today. He was, by any measure, one of the greatest traders who ever lived. |
He died broke. |
What Livermore Saw
Livermore had a phrase for it: the line of least resistance. He believed that prices, once they started moving in a direction, tended to keep moving that way—until something stopped them. His job wasn't to guess where a stock should go. It was to recognize where it was going and get on board before the move was over.
That's momentum investing in its purest form: the observation that securities which have performed well recently have, historically, tended to continue performing well in the short term. The same applies in reverse—losers tend to keep losing, at least for a while. Why? Part of it is human behavior. |
News travels slowly through markets. Investors anchor to old prices. When something starts moving, it takes time for everyone to catch up. By the time the last buyer figures out what's happening, the early ones are already gone.
Livermore understood this before behavioral finance had a name. He called it "reading the tape." Modern investors might call it trend-following. The mechanics have changed. The psychology hasn't. |
The Cost
He was right. About the 1907 panic. About the 1929 crash. About dozens of trades that made him fantastically wealthy. And still, it wasn't enough.
Momentum strategies have a particular kind of fragility. They work until they don't—and when they stop working, they often stop suddenly. Trends reverse. What looked like a clear path forward becomes a cliff. Livermore knew this better than anyone. He wrote about it. He warned about it. And he still got caught. |
There's also the cost of playing. Momentum typically requires more frequent trading, which can mean higher transaction costs and potential tax implications from short-term gains. The math has to work after all the friction, not before.
And then there's timing. Momentum rewards those who enter early and exit before the reversal. But identifying those moments in real time, rather than in hindsight, is notoriously difficult. Livermore devoted his entire life to it. Most of us have other things to do. |
The Pull
You probably won't become a professional momentum trader. But you've almost certainly felt the pull.
Maybe it was watching a stock climb for months and wondering if you were missing out. Or a neighbor's brag, a headline, a chart that kept going up and to the right. |
That feeling—the itch to chase what's already moving—is the same instinct that made and unmade Livermore several times over. |
Understanding momentum doesn't mean you need to act on it. But knowing why you're tempted might be worth something.
The Book He Left Behind
Reminiscences of a Stock Operator, a fictionalized account of Livermore's early career, was published in 1923. A century later, it remains one of the most respected books on trading psychology ever written. Not because it teaches a formula—it doesn't. But because it captures something true about markets, about momentum, and about the kind of person who tries to master both.
Livermore's gift was seeing what others missed. His tragedy was that even seeing clearly wasn't enough to protect him from himself. |
Momentum is real. The patterns Livermore saw are still there. But knowing something exists and knowing what to do about it are two very different things.
The line of least resistance can carry you forward—or take you over the edge. |
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Written and shared by Anthony S. Owens, on behalf of the team at McKee Financial Resources, Wealth Management Services.
Disclaimer: This article is for educational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any security. Momentum investing involves significant risks, including the potential for substantial losses. Past performance is not a guarantee of future results. All investing involves risk, and you should consult with a qualified financial professional before making investment decisions based on your individual circumstances. Copyright © 2026 Anthony S. Owens. All rights reserved. |