A Bellman View of Jesse Livermore

TL;DR

This paper applies Bellman's Principle of Optimality to analyze Jesse Livermore's trading principles, providing a new perspective on his methods through the lens of dynamic programming.

Contribution

It offers a novel interpretation of Livermore's trading strategies using Bellman's framework, bridging finance and optimal control theory.

Findings

Livermore's principles align with Bellman's optimality conditions

Provides a formal mathematical perspective on Livermore's trading methods

Enhances understanding of trading strategies through dynamic programming

Abstract

Richard Bellman's Principle of Optimality, formulated in 1957, is the heart of dynamic programming, the mathematical discipline which studies the optimal solution of multi-period decision problems. In this paper, we look at the main trading principles of Jesse Livermore, the legendary stock operator whose method was published in 1923, from a Bellman point of view.