Natural Movements and Secondary Columns: Jesse Livermore's Pivot Point System

In the world of stock trading, Jesse Livermore’s pivot point system stands as a testament to the power of meticulous record-keeping and analysis. Central to this system are the concepts of Natural Movements and Secondary Columns.

In the intricate ballet of the stock market, Livermore’s system serves as choreography, guiding traders through each step with precision and foresight.

This article delves into the intricate relationship between the Natural columns and the Secondary Rally and Secondary Reaction columns, shedding light on the conditions under which entries are made in these secondary columns.

1. Introduction: The Art of Recording

Trading, at its core, is as much an art as it is a science. The pivot point system, as championed by Jesse Livermore, emphasizes the importance of recording price movements with precision. This precision, in turn, aids in discerning patterns, predicting trends, and making informed trading decisions.

2. Recording Prices: The Basics

Before diving deep into the intricacies of Livermore’s system, it’s essential to grasp the foundational principles on which it stands. Recording prices accurately and consistently is the bedrock of any trading strategy. In Livermore’s pivot point system, the color of the ink and the specific column in which prices are recorded play a pivotal role in understanding market trends.

a. Upward and Downward Trends

• Upward Trend: Prices are recorded in black ink.
• Downward Trend: Prices are recorded in red ink.

b. Other Columns

For the other four columns, prices are recorded in pencil, ensuring flexibility and adaptability in the ever-changing stock market.

3. The Role of Lines

Lines, especially their colors, play a crucial role in Livermore’s system. They serve as markers, guiding the trader in understanding transitions between columns and indicating pivotal points.

a. Transitioning to Natural Reaction

Red lines are drawn under the last recorded price in the Upward Trend column when transitioning to the Natural Reaction column. This transition is triggered by a reaction of approximately six points from the last price in the Upward Trend column.

b. Transitioning to Natural Rally

Similarly, red lines are drawn under the last recorded price in the Natural Reaction column when transitioning to either the Natural Rally or Upward Trend columns.

c. From Downward Trend to Natural Rally

Black lines signify the transition from the Downward Trend column to the Natural Rally column, marking a rally of approximately six points.

d. From Natural Rally to Other Columns

Black lines also guide the transition from the Natural Rally column to either the Natural Reaction or Downward Trend columns.

4. Secondary Columns: The Heart of the Matter

The Secondary Rally and Secondary Reaction columns serve as buffers, capturing price movements that don’t fit neatly into the primary Natural columns.

a. Transitioning to Secondary Columns

When recording in the Natural Rally or Natural Reaction columns, if certain conditions are met that don’t warrant an entry into the primary columns, prices are instead recorded in the secondary columns. This mechanism ensures that no significant price movement goes unrecorded.

b. The Role of Pivotal Points

Pivotal Points, marked by double lines in either red or black ink, are crucial in Livermore’s system. They represent significant price levels that, once reached, can greatly influence future price movements. These points serve as markers for traders, helping them anticipate the market’s next significant move.

5. Deciphering the Dance of Columns

Jesse Livermore’s pivot point system, with its emphasis on Natural Movements and Secondary Columns, offers traders a structured approach to recording and analyzing price movements. By understanding the dance between the Natural and Secondary columns, traders can better anticipate market trends, making informed decisions that align with the market’s rhythm.