Trend Analysis Using Natural Movements: Jesse Livermore's Pivot Point System

Jesse Livermore’s pivot point system offers a meticulous approach to understanding market trends. By focusing on natural movements and pivotal points, traders can gain insights into potential market shifts.

In the vast tapestry of stock trading, Livermore’s system acts as a guiding thread, weaving clarity through the complex patterns of market behavior.

This article delves into the intricacies of this system, emphasizing the significance of the Natural Rally and Natural Reaction columns.

1. Recording Prices Based on Trends

In the realm of stock trading, the way prices are recorded can offer invaluable insights into potential market movements. Jesse Livermore’s system emphasizes the importance of categorizing prices based on their trend direction.

By distinguishing between upward, downward, and other movements, traders can visually and analytically discern the market’s pulse. Let’s delve into the specifics of how prices are recorded in each trend category:

Upward Trend

• Ink Color: Black
• Criteria: Prices that indicate an upward market trend.

Downward Trend

• Ink Color: Red
• Criteria: Prices that suggest a downward market trend.

Other Columns

• Ink Used: Pencil
• Criteria: Prices that don’t fit into the upward or downward trend categories.

2. The Art of Drawing Lines

Drawing lines beneath recorded prices serves as a visual cue, indicating shifts between columns and potential market trend changes.

Upward Trend to Natural Reaction

• Line Color: Red
• Trigger: A reaction of approximately six points from the last price in the Upward Trend column.

Natural Reaction to Natural Rally or Upward Trend

• Line Color: Red
• Trigger: A rally of approximately six points from the last price in the Natural Reaction column.

Downward Trend to Natural Rally

• Line Color: Black
• Trigger: A rally of approximately six points from the last price in the Downward Trend column.

Natural Rally to Natural Reaction or Downward Trend

• Line Color: Black
• Trigger: A reaction of approximately six points from the last price in the Natural Rally column.

3. Transitioning Between Columns

The system’s strength lies in its ability to predict potential market shifts based on the movement between columns.

Natural Rally to Upward Trend

• Criteria: A price that’s three or more points above the last recorded price in the Natural Rally column.

Natural Reaction to Downward Trend

• Criteria: A price that’s three or more points below the last recorded price in the Natural Reaction column.

4. Pivotal Points: The Heart of the System

Pivotal points are crucial in this system. They serve as markers, indicating significant market shifts.

Identifying Pivotal Points

The last price recorded in the Downward or Upward Trend columns becomes a pivotal point as soon as prices are recorded in the Natural Rally or Natural Reaction columns.

Significance of Pivotal Points

After two pivotal points are identified, these records become invaluable in predicting the next significant market movement.

5. Key Price Considerations

While the system primarily uses a six-point basis for individual stocks, a twelve-point basis is applied when recording the Key Price.

6. Explanatory Rules and Secondary Columns

Secondary columns come into play when prices don’t fit the criteria for the Natural Rally or Natural Reaction columns. These columns offer additional insights, helping traders make more informed decisions.

Natural Rally to Secondary Reaction

• Criteria: A reaction of approximately six points, but the price isn’t lower than the last figure in the Natural Reaction column.

Natural Reaction to Secondary Rally

• Criteria: A rally of approximately six points, but the price doesn’t exceed the last figure in the Natural Rally column.

Harnessing the Power of Natural Movements

Jesse Livermore’s pivot point system, with its emphasis on natural movements, provides traders with a robust framework to anticipate market trends. By understanding the relationship between the Natural Rally and Natural Reaction columns and the secondary columns, traders can make more informed decisions, capitalizing on market shifts. The system’s beauty lies in its simplicity and its ability to offer clear insights into the often chaotic world of trading.