Trend Columns and Price Movements: Jesse Livermore's Pivot Point System

Jesse Livermore’s pivot point system is a renowned method used by traders to understand and anticipate market movements. Central to this system is the concept of trend columns and how prices move within and between them. This article delves into the intricacies of this system, providing a structured understanding of its components.

In the dance of numbers on a stock chart, Livermore’s pivot point system is the choreography that brings order to chaos, guiding traders through the market’s intricate ballet.

1. Recording Prices in Trend Columns

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 using a pencil.

2. Drawing Lines to Indicate Transitions

Drawing lines under specific prices helps traders identify pivotal points and potential trend shifts.

Upward Trend to Natural Reaction

• Draw red lines under the last price in the Upward Trend column when transitioning to the Natural Reaction column. This is initiated after a reaction of approximately six points from the last Upward Trend price.

Natural Reaction to Natural Rally or Upward Trend

• Draw red lines under the last price in the Natural Reaction column when transitioning to the Natural Rally or back to the Upward Trend column. This starts after a rally of about six points from the last Natural Reaction price.

Downward Trend to Natural Rally

• Draw black lines under the last price in the Downward Trend column when transitioning to the Natural Rally column. This begins after a rally of roughly six points from the last Downward Trend price.

Natural Rally to Natural Reaction or Downward Trend

• Draw black lines under the last price in the Natural Rally column when transitioning to the Natural Reaction or back to the Downward Trend column. This is initiated after a reaction of about six points from the last Natural Rally price.

3. Transitioning Between Columns Based on Price Movements

The system emphasizes the importance of monitoring price movements and transitioning between columns based on specific criteria.

Natural Rally to Upward Trend

• If a price in the Natural Rally column is three or more points above the last recorded price (with black lines underneath), it should be recorded in the Upward Trend column in black ink.

Natural Reaction to Downward Trend

• If a price in the Natural Reaction column is three or more points below the last recorded price (with red lines underneath), it should be recorded in the Downward Trend column in red ink.

4. Key Price Recording

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

5. Explanatory Rules and Pivotal Points

Pivotal points are crucial in Livermore’s system. They help traders anticipate significant market movements and make informed decisions.

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. After a rally or reaction ends, the extreme price in the previous column becomes another pivotal point.

Significance of Pivotal Points

• After two pivotal points are reached, these records become invaluable in predicting the next significant market movement. These points are highlighted with double lines in either red or black ink, serving as a constant reminder for traders.

The Power of Anticipation

Jesse Livermore’s pivot point system, with its emphasis on Trend Columns and Price Movements, offers traders a structured approach to anticipate market shifts. By understanding the transitions between columns and recognizing pivotal points, traders can make more informed decisions, ensuring they’re always one step ahead in the ever-evolving world of trading.