Danger Signals in Trend Columns: Jesse Livermore's Pivot Point System

Jesse Livermore’s pivot point system is a renowned method for tracking stock market trends. Central to this system is the ability to identify “danger signals” in the Upward and Downward Trend columns. These signals, based on price reactions or rallies from pivotal points, can indicate the end of a trend. This article delves into the specifics of these danger signals and how they can be used to anticipate market movements.

In the unpredictable dance of stock prices, Livermore’s ‘danger signals’ serve as the abrupt pause, alerting traders to potential shifts in the market’s rhythm.

1. Recording Prices in Trend Columns

Upward Trend Column

• Ink Color: Black
• Purpose: To record prices that indicate an upward trend.

Downward Trend Column

• Ink Color: Red
• Purpose: To record prices that suggest a downward trend.

Other Columns

• Ink Type: Pencil
• Purpose: To record prices in the remaining four columns.

2. The Significance of Drawing Lines

Drawing lines under recorded prices in various columns serves as a visual cue for market behavior. These lines, often colored red or black, highlight pivotal points and potential trend shifts.

Red Lines

• Drawn under the last recorded price in the Upward Trend column when figures start being recorded in the Natural Reaction column.
• Drawn under the last recorded price in the Natural Reaction column when figures begin in the Natural Rally or Upward Trend columns.

Black Lines

• Drawn under the last recorded price in the Downward Trend column when figures start being recorded in the Natural Rally column.
• Drawn under the last recorded price in the Natural Rally column when figures begin in the Natural Reaction or Downward Trend columns.

3. Identifying Danger Signals

Danger signals arise when there’s a significant deviation from the expected trend. These signals can indicate a potential end to the current trend, whether upward or downward.

Upward Trend Danger Signals

• If a stock, while being recorded in the Natural Rally column, ends its rally just below the last pivotal point in the Upward Trend column and then reacts by three or more points from that price.

Downward Trend Danger Signals

• If a stock, while being recorded in the Natural Reaction column, ends its reaction just above the last pivotal point in the Downward Trend column and then rallies by three or more points from that price.

4. The Role of Pivotal Points

Pivotal points are crucial markers in Livermore’s system. They are highlighted by double lines (either red or black) and serve as reference points for future price movements. When two pivotal points have been established, they become invaluable in predicting the next significant market movement.

5. Key Price Recording

While the same rules apply when recording the Key Price, it’s essential to note that the basis for the Key Price is twelve points, as opposed to the six points used for individual stocks.

Interpreting the Signals for Market Mastery

Understanding the danger signals in the Upward and Downward Trend columns is pivotal for anyone using Jesse Livermore’s system. These signals, based on price deviations from pivotal points, offer a clear indication of potential trend shifts. By mastering the ability to identify and interpret these signals, traders can make more informed decisions, anticipate market movements, and navigate the stock market with greater confidence.