Secondary Movements and Six-Point Changes: Jesse Livermore's Pivot Point System

Jesse Livermore’s pivot point system is a renowned method for tracking stock price movements. Central to this system is the concept of secondary movements and the significance of six-point changes. This article delves into the intricacies of these concepts and their implications for traders.

Understanding the Basics

At the heart of Livermore’s system lies a set of foundational principles that dictate how stock prices are recorded and analyzed. These basics provide traders with a clear framework to interpret price movements and anticipate potential shifts in market trends.

1. Color-Coded Recording

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

2. The Role of Drawing Lines

Drawing lines beneath recorded prices serves as a visual cue for traders to identify pivotal points and potential trend shifts.

Six-Point Changes and Their Significance

Six-point changes act as key indicators in Livermore’s system, signaling moments of potential transition and trend reversal. By closely monitoring these shifts, traders can better position themselves to capitalize on emerging market opportunities.

Six-point changes act as key indicators in Livermore’s system, signaling moments of potential transition and trend reversal.

3. Transitioning Between Columns

The six-point change is a crucial threshold in Livermore’s system. It dictates when traders should transition between columns, signaling potential trend reversals.

• Upward to Natural Reaction: A reaction of approximately six points from the last price in the Upward Trend column prompts recording in the Natural Reaction column.
• Natural Reaction to Natural Rally or Upward Trend: A rally of approximately six points from the last price in the Natural Reaction column dictates recording in either the Natural Rally or the Upward Trend column.
• Downward to Natural Rally: A rally of approximately six points from the last price in the Downward Trend column leads to recording in the Natural Rally column.
• Natural Rally to Natural Reaction or Downward Trend: A reaction of approximately six points from the last price in the Natural Rally column necessitates recording in either the Natural Reaction or the Downward Trend column.

4. Secondary Movements: Rally and Reaction

Secondary movements play a pivotal role in determining the strength and direction of the primary trend.

• Natural Rally: If a rally ends just below the last pivotal point in the Upward Trend column and the stock reacts by three or more points from that price, it’s a warning that the Upward Trend might be ending.
• Natural Reaction: Conversely, if a reaction concludes slightly above the last pivotal point in the Downward Trend column and the stock rallies by three or more points from that price, it indicates the Downward Trend might be concluding.

Key Price Considerations

For the Key Price, the same rules apply, but the basis is twelve points instead of six. This distinction emphasizes the importance of larger price movements when considering the overall market trend.

The Power of Pivotal Points

In Jesse Livermore’s pivot point system, the six-point changes and secondary movements are instrumental in identifying pivotal points. These points, marked by double lines in either red or black ink, serve as crucial markers for traders. They highlight potential trend reversals and offer insights into the market’s strength and direction. By understanding and leveraging these concepts, traders can make more informed decisions and better anticipate significant market movements.