Livermores Pivotal Point Explained SCRBD

The Pivotal Point Defined and Explained
The crux of Livermore’s system centered on patterns in prices that he attempted to identify. This is no longer a
novel idea nine decades after his heyday, but at the time it was somewhat revolutionary in American stock market
trading. Today a great number of modern day traders plot such elements as price and volume against time using
charts. Jesse was fairly unique in the fact that he did not rely on nor employ charts really. He preferred to observe
and analyze the numbers directly. This is one of the major ways in which he separated himself from traders of
his own day and ours today as well.
Jesse Livermore famously wrote:
“Whenever I have had the patience to wait for the market to arrive at what I call a Pivotal Point before I started to
trade; I have always made money in my operations.”
Look at this chart to get a better idea of this pivotal point concept which he is discussing:
As you can see, in this chart a pivotal point has been attained. Previously, the stock’s price had been trending to the
downside but then it rallied from its prior low of 40 cents. For whatever reason, such a rally was unsustainable and
the stock returned to near its low of 40 cents once again. This means that the 40 cents line in the proverbial sand
has evolved into what Jesse affectionately called a “pivotal point.” From this point, any major move either higher
or lower off of this pivotal point would then be traded by Jesse Livermore.
As an example, if the stock broke below 37 cents, then Jesse would simply sell it short. If instead it rallied above
43 cents, he would buy the stock. He would watch the ensuing price action with caution after buying, since the
prior high of the past rally was at 49 cents, yet another pivotal point though one to the upside this time. If the price
was again unable to surpass the 49 cent pivotal point by around 3 cents, then Jesse Livermore would simply
abandon the trade.
Regarding the importance of timing such trades carefully, Livermore once said:
“I never benefited much from a move if I did not get in at somewhere near the beginning of the move. And the
reason is that I missed the backlog of profit which is very necessary to provide the courage and patience to sit
through a move until the end comes – and to stay through any minor reactions or rallies which were bound to occur
from time to time before the movement had completed its course.”
Jesse Livermore Always Looked For The Following Signs:
 At a move’s beginning, he sought confirmation of a significant and atypical number of shares volume
traded.
 Then the price actions should more or less be in a single up or down direction for several days.
 There should subsequently be a normal reaction whereby volume dropped as compared with the higher
volumes which were witnessed in the early stages of the initial trend, and this would be accompanied by the
price action turning a little against the new trend.
 After only a day or two from the normal reaction, the subsequent volume ought to again rise with the
price trend resuming alongside this volume improvement.
Livermore stated that if the pattern continues to be repeated, then the trade remains a safe bet. However, when
deviation from the four step procedure appeared, this was a warning sign. With a failure in the pattern leading
to the price going against its trend by more than only a little, this proved to be the crystal clear point to abandon the
trade and get out while there was still a profit to be had.
In Conclusion
It is hard to argue against success in general, but it is nearly impossible to oppose the legendary, long-lasting, and
far reaching levels of success that Jesse Livermore attained consistently. So long as he obeyed the rules of his own
system, the man made more money than he knew what to do with in his life. On those rare occasions where he
grew impatient or disobeyed his strategy, he lost the very same fortunes that he had spent a great amount of
time building up. The telling signs of the validity of his strategy are that it still works today, nearly a hundred
years after he originally formulated and proved it.

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The Pivotal Point Defined and Explained

Jesse Livermore famously wrote:

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