Jesse Livermore's Trend Columns and Pivot Point System

Jesse Livermore, a luminary in the world of stock trading, was celebrated for his unparalleled ability to decipher market movements. Central to his technical analysis was the intricate interplay between trend columns and the pivot point system. This article delves into the introduction of trend columns as applied to Livermore’s pivot point system.

The Foundation: Trend Columns

Livermore’s trend columns served as the backbone of his technical analysis. They were meticulously crafted records of price movements, allowing him to visualize the market’s ebbs and flows. But these weren’t just arbitrary recordings; they were steeped in method and purpose:

1. Prices in the Upward Trend column were recorded in black ink.
2. Conversely, the Downward Trend column saw prices recorded in red ink.
3. The remaining columns, capturing other nuances of the market, were recorded in pencil.

In the tapestry of the stock market, Livermore’s trend columns were the threads, weaving together a vivid picture of market dynamics.

Drawing Lines: The Markers of Significance

Drawing lines beneath recorded prices was a significant aspect of Livermore’s method. These lines, whether red or black, served as markers, highlighting pivotal prices and potential trend shifts:

• Red lines under the last price in the Upward Trend column signified the beginning of entries in the Natural Reaction column after a reaction of approximately six points.
• Similarly, red lines under the Natural Reaction column indicated the start of entries either in the Natural Rally column or back in the Upward Trend column after a rally of about six points.
• Black lines under the Downward Trend column marked the onset of entries in the Natural Rally column after a rally of around six points.
• Black lines under the Natural Rally column denoted the beginning of entries either in the Natural Reaction column or the Downward Trend column after a reaction of roughly six points.

Pivotal Points: The Heart of the System

The concept of pivotal points was central to Livermore’s strategy. These were specific price levels that Livermore believed held significant weight in determining future price movements:

• The last price recorded in the Downward or Upward Trend columns became a pivotal point as soon as entries began in the Natural Rally or Natural Reaction columns.
• After a rally or reaction concluded, recording resumed in the reverse column, and the extreme price made in the previous column then became another pivotal point.
• These pivotal points, emphasized by double lines drawn beneath them, were crucial indicators. They helped Livermore anticipate the market’s next significant movement, guiding his trading decisions.

The Intricacies of Trend Resumption and Reversal

Livermore’s method was replete with detailed rules to determine trend resumption or reversal:

• When recording in the Natural Rally column, if a price exceeded the last price in the Upward Trend column by three or more points, it was entered in the Upward Trend column in black ink.
• Conversely, in the Natural Reaction column, if a price went three or more points below the last recorded price, it was entered in the Downward Trend column in red ink.

Danger Signals: Indicators of Trend Termination

Livermore was acutely aware of the market’s unpredictability. He devised rules to identify danger signals, which indicated potential trend terminations:

• If, while recording in the Natural Rally column, a rally ended just below the last pivotal point in the Upward Trend column and the stock reacted by three or more points from that price, it signaled the end of the upward trend.
• Similarly, while recording in the Natural Reaction column, if a reaction concluded just above the last pivotal point in the Downward Trend column and the stock rallied by three or more points from that price, it indicated the end of the downward trend.