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Market Lab Report - Dissecting Jesse Livermore's Century Mark Rule - Part 1

Dissecting Jesse Livermore’s Century Mark Rule – Part 1

By Dr. Chris Kacher & Gil Morales, Managing Directors
MoKa Investors, LLC

In the investment classic, Reminiscences of a Stock Operator by Edwin Lefevre, the great trader Jesse Livermore discusses one of his “old trading theories” based on the movement of a stock through a century mark such as 100, 200, 300, etc., for the first time. On page 104 of the John A. Wiley & Sons edition published in 1994, Livermore cites this rule in a narrative wherein he discusses his trading operations in Anaconda Copper during early February 1907.

At the time, he is long this “big-stock” copper name of the early 1900-era as it passes up through the $300 price level. This triggers his rule, which he cites as follows, “It was an old trading theory of mine that when a stock crossed 100 or 200 or 300 for the first time the price does not stop there but goes a good deal higher, so that if you buy it as soon as it crosses the line it is almost certain to show you a profit.”

Intuitively, we can understand why this rule would work since basic technical analysis theory often cites the idea of “psychological resistance” at “round” numbers where there is only one zero after the first digit, such as 40, 50, 60, etc. In the case of a “Century Mark” with two zeroes after the first digit, the psychological resistance might be more significant at such price levels.

Therefore, once a stock bursts through this “double-zero” psychological resistance, the impetus to move higher may have greater velocity. Livermore’s expectations for Anaconda Copper once it cleared the $300 century mark were clear, “I figured that when it crossed 300 it ought to keep going and probably touch 340 in a jiffy.” That implied a rapid movement of over 13% higher from the 300 price level, which we can call the “point of impact.”

The question for modern-day investors is whether this rule of Livermore’s, this “Century Mark Rule,” holds water in today’s market. We will investigate this in Part 2 of this article.

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