Trend Resumption Indicators: Jesse Livermore's Pivot Point System

Jesse Livermore’s pivot point system is a renowned trading methodology that has stood the test of time. Central to this system are the indicators that signal the potential resumption of an upward or downward trend. This article delves into the intricacies of these trend resumption indicators, providing traders with a comprehensive understanding of when and how to anticipate market movements.

In the vast ocean of stock trading, Livermore’s indicators act as the lighthouse, guiding traders safely through the tumultuous waves of market trends.

1. Recording Prices: The Basics

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

2. Drawing Lines to Indicate Pivotal Points

a. Upward Trend Column

Draw red lines under the last recorded price in the Upward Trend column on the first day 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 you start recording in the Natural Rally or Upward Trend column. This action is triggered by the first rally of about six points from the last price in the Natural Reaction column.

c. Downward Trend Column

Black lines are drawn under the last price in the Downward Trend column when you begin recording in the Natural Rally column. This is initiated on the first rally of approximately six points from the last price in the Downward Trend column.

d. Natural Rally Column

Black lines are drawn under the last price in the Natural Rally column when you start recording in the Natural Reaction or Downward Trend column. This is based on the first reaction of about six points from the last price in the Natural Rally column.

3. Identifying Trend Resumption

a. Upward Trend Resumption

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

b. Downward Trend Resumption

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

4. Key Price Recording

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 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 has ended, you begin recording in the reverse column, and the extreme price made in the previous column then becomes another pivotal point.

The Power of Trend Resumption Indicators

Jesse Livermore’s pivot point system offers traders a robust framework to anticipate market movements. By understanding the conditions that indicate the resumption of an Upward or Downward Trend, traders can make informed decisions, capitalizing on opportunities and mitigating risks. The key lies in observing the pivotal points and the nuances of price recordings, ensuring that one is always in sync with the market’s pulse.