Pivotal Points within Trend Columns: Jesse Livermore's Pivot Point System

Understanding the intricacies of market trends is crucial for any trader. One of the legendary figures in the world of trading, Jesse Livermore, developed a pivot point system that emphasized the importance of pivotal points within trend columns. This article delves into the role of these pivotal points, especially within the Upward and Downward Trend columns, and how they can indicate potential trend reversals or continuations.

In the symphony of stock trading, Livermore’s pivotal points are the crescendos that capture the market’s heartbeat, offering traders a melody of insights and foresight.

1. Basics of Recording Prices

• Upward Trend Column: Prices are recorded in black ink.
• Downward Trend Column: Prices are recorded in red ink.
• Other Columns: Prices in the other four columns are recorded in pencil.

2. Drawing Lines to Indicate Pivotal Points

In the intricate dance of stock market trends, pivotal points act as the rhythm guiding a trader’s steps. These points, marked distinctly within trend columns, serve as visual cues, helping traders discern potential shifts in market momentum. By drawing lines under specific recorded prices, one can effectively track and anticipate significant market movements. Let’s delve into how these lines are drawn across different columns:

a. Upward Trend Column

Draw red lines under the last recorded price in the Upward Trend column when you begin recording in the Natural Reaction column. This is initiated on the first reaction of approximately six points from the last price in the Upward Trend column.

b. Natural Reaction Column

Draw red lines under the last recorded price in the Natural Reaction column when starting to record in either the Natural Rally or Upward Trend column. This is based on the first rally of approximately six points from the last price in the Natural Reaction column.

c. Downward Trend Column

Draw black lines under the last recorded price in the Downward Trend column when starting to record in the Natural Rally column. This starts on the first rally of approximately six points from the last price in the Downward Trend column.

d. Natural Rally Column

Draw black lines under the last recorded price in the Natural Rally column when beginning to record in either the Natural Reaction or Downward Trend column. This is based on the first reaction of approximately six points from the last price in the Natural Rally column.

3. Recognizing Trend Reversals and Continuations

The art of recording stock prices is not just about noting down numbers; it’s about understanding the story they tell. Each column in Jesse Livermore’s pivot point system has its unique significance, and the medium used to record these prices—be it ink or pencil—adds another layer of meaning. This method ensures that traders can quickly identify and respond to the market’s ebbs and flows. Let’s explore the nuances of recording prices in different columns:

a. Upward Trend Reversals

When recording in the Natural Rally column, if a rally concludes just below the last Pivotal Point in the Upward Trend column (indicated by red lines) and the stock reacts three or more points from that price, it signals a potential end to the Upward Trend.

b. Downward Trend Reversals

While recording in the Natural Reaction column, if the reaction ends slightly above the last Pivotal Point in the Downward Trend column (marked by black lines) and the stock rallies three or more points from that price, it indicates a potential cessation of the Downward Trend.

4. Key Price Considerations

The same rules apply when recording the Key Price. However, the basis is twelve points instead of the six points used for individual stocks.

5. Explanatory Rules and Pivotal Points

The last price recorded in either the Downward or Upward Trend columns becomes a Pivotal Point as soon as you start recording in the Natural Rally or Natural Reaction columns. After a rally or reaction concludes, recording resumes in the reverse column, and the extreme price in the previous column then becomes another Pivotal Point. These Pivotal Points, highlighted with double lines in either red or black ink, are crucial for anticipating the next significant market movement.

The Power of Pivotal Points

Jesse Livermore’s pivot point system underscores the significance of Pivotal Points within trend columns. These points, especially within the Upward and Downward Trend columns, serve as critical indicators for traders, helping them discern potential trend reversals or continuations. By understanding and effectively utilizing these points, traders can make more informed decisions and navigate the complexities of the market with greater confidence.