Ink Color Significance in Trend Columns: Understanding Jesse Livermore's Pivot Point System

In the world of stock trading, few names are as legendary as Jesse Livermore. Known for his uncanny ability to predict market movements, Livermore devised a unique system that utilized color-coded columns to track and anticipate market trends. This Pivot Point System, as it came to be known, was a revolutionary approach in its time and remains influential today.

At the heart of this system is the significance of ink colors, which provide traders with visual cues about the market’s direction. In this article, we’ll delve into the nuances of these colors and their role in Livermore’s groundbreaking method.

In Livermore’s world of trading, colors were more than just aesthetic choices; they were the language of the market, speaking volumes about its direction and momentum.

The Basics of Color Coding

Jesse Livermore, one of the greatest traders in history, developed a unique system for tracking market trends known as the Pivot Point System. Central to this system is the use of different ink colors and columns to record price movements.

Black Ink

Prices in the Upward Trend column are recorded in black ink. This signifies a bullish trend, indicating that the market is moving upwards.

Red Ink

Prices in the Downward Trend column are noted in red ink. This color represents a bearish trend, suggesting that the market is on a decline.

Pencil

The other four columns in Livermore’s system are recorded in pencil. This choice of medium indicates a more neutral or transitional phase in the market.

Drawing Lines and Their Significance

The act of drawing lines beneath recorded prices in various columns serves as a visual cue for traders to identify pivotal points in the market. These lines, drawn in either red or black, highlight significant market reactions or rallies.

Red Lines

Drawn under the last recorded price in the Upward Trend column when figures begin in the Natural Reaction column. Also drawn under the last price in the Natural Reaction column when recording starts in either the Natural Rally or Upward Trend columns.

Black Lines

Drawn under the last recorded price in the Downward Trend column when figures begin in the Natural Rally column. Also drawn under the last price in the Natural Rally column when recording starts in either the Natural Reaction or Downward Trend columns.

Pivotal Points and Market Analysis

Two pivotal points are established when red lines are drawn under prices in both the Upward Trend and Natural Reaction columns. These points serve as markers for traders. Depending on how prices are recorded around these points, traders can form opinions on whether the positive trend will resume or if the movement has concluded.

Advanced Color Coding Rules

Livermore’s system also includes advanced rules for transitioning between columns based on specific price movements:

Natural Rally Column

When recording in the Natural Rally column, if a price exceeds the last recorded price by three or more points, it should be entered in black ink in the Upward Trend column.

Natural Reaction Column

Conversely, in the Natural Reaction column, if a price is three or more points below the last recorded price, it should be entered in red ink in the Downward Trend column.

Key Price Recording

While the general rules apply to individual stocks using a six-point basis, the Key Price column uses a twelve-point basis. This differentiation emphasizes the significance of broader market movements compared to individual stock movements.

Decoding Livermore’s Color-Coded System

Jesse Livermore’s Pivot Point System offers traders a visual and systematic approach to tracking market trends. The use of different ink colors not only simplifies the recording process but also provides immediate visual cues about market direction. By understanding the significance of these ink colors and the rules associated with them, traders can make more informed decisions and anticipate market movements with greater accuracy.