What Did Jesse Livermore Think Of Break-Out to A New High or A New Low

Livermore was one of the first people to realize that stocks breaking out to new highs often took off from there and had astounding runs. Large profits can be derived from this simple fact. 

Livermore’s logic was always simple and to the point. New highs or new low break-outs were always good news for Jesse Livermore. The theory behind heeding this pattern was that Livermore had observed that people do not want to sell their stocks for a loss. So, if they missed selling on the high, which happened to the bulk of investors, they would sit with the stock through thick and thin and, when it rallied, if it did in fact rally, and proceeded to get back to the old high, they would dump their stock to recoup their losses. So, when the stock broke out to new ground above the old high this meant to Livermore that all that old overhanging stock was now cleared out of the way. This meant clear sailing ahead, in most cases. So, he was in effect buying the stock when the majority of people had sold theirs and when the stock was in position to make a new run.

Conversely on the short side, new lows mean people have given up on the stock and are now dumping it, throwing it overboard to get whatever they can for it.

Why these formations repeat themselves is unknown. Livermore attributed this repetition to human nature: “All through time, people have basically acted the same way in the stock market as a result of greed, fear, ignorance and hope—that is why the formations and patterns recur on a constant basis. The patterns trader observes are simply the reflections of human's emotional behaviors.”