Transitioning to Natural Columns: A Deep Dive into Jesse Livermore's Pivot Point System

The stock market is a complex entity, with prices constantly ebbing and flowing. To make sense of these movements, traders have developed various systems and techniques. One such system, devised by the legendary trader Jesse Livermore, emphasizes the importance of transitioning to natural columns. This article delves into the conditions and price movements that lead to recording in the Natural Rally or Natural Reaction columns from the Upward or Downward Trend columns.

In the intricate dance of stock prices, transitioning to the Natural columns is akin to finding one’s rhythm, allowing traders to move in harmony with the market’s ever-changing beat.

1. Recording Prices in Trend Columns

Prices in the stock market are dynamic, and their recording is an essential aspect of tracking and predicting future movements. In the Pivot Point System:

• Upward Trend: Prices are recorded in black ink.
• Downward Trend: Prices are captured in red ink.
• Other Columns: Prices in the remaining four columns are noted down in pencil.

2. Drawing Lines to Understand Market Movements

Drawing lines serves as a visual representation of pivotal price points, indicating potential market shifts.

• Red Lines in Upward Trend: These 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 recorded price.
• Red Lines in Natural Reaction: Drawn under the last price in the Natural Reaction column when transitioning to either the Natural Rally or back to the Upward Trend column.
• Black Lines in Downward Trend & Natural Rally: Similar to the red lines, black lines are drawn under the last recorded prices in the Downward Trend and Natural Rally columns, indicating transitions based on rallies or reactions of about six points.

3. Transitioning to Natural Columns

The essence of Livermore’s system lies in understanding when to transition to the Natural Rally or Natural Reaction columns.

• From Upward Trend to Natural Reaction: This transition occurs after a reaction of about six points. Prices are then recorded in the Natural Reaction column if they are lower than the last recorded price in this column.
• From Natural Rally to Natural Reaction: A similar transition occurs after a reaction of six points, with the added condition that if a price is lower than the last in the Downward Trend column, it’s recorded there.
• From Downward Trend to Natural Rally: A rally of approximately six points triggers this transition, with prices being recorded in the Natural Rally column if they are higher than its last recorded price.
• From Natural Reaction to Natural Rally: This transition is also based on a rally of about six points. If a price surpasses the last one in the Upward Trend column, it’s recorded there.

4. Key Price Considerations

While the above rules apply primarily to individual stocks, when recording the Key Price, a basis of twelve points is used instead of the standard six.

5. Explanatory Rules and Pivotal Points

The last price recorded in the Downward or Upward Trend columns becomes a Pivotal Point when transitioning to the Natural columns. These Pivotal Points, highlighted with double lines, are crucial indicators of significant market movements. Their role is to guide traders in anticipating the next significant market movement.

The Art of Transitioning In Stock Analysis

Jesse Livermore’s Pivot Point System offers traders a structured approach to understanding stock market movements. By focusing on the conditions leading to transitions between columns, especially to the Natural Rally and Natural Reaction columns, traders can gain a clearer picture of market trends and make more informed decisions. As with any system, the key lies in diligent application and continuous learning.