Differentiating Primary from Secondary Movements in Jesse Livermore's Pivotal Points Trading System

Jesse Livermore’s Pivotal Points Trading System offers a structured methodology to track and interpret stock movements. One of the key distinctions in this system is between primary and secondary movements. This article will delve deeper into this distinction, providing clarity on how to differentiate and record these movements.

In the dance of stock movements, while primary trends set the stage, it’s the secondary movements that add the intricate steps and turns, revealing the market’s immediate sentiments and reactions.

1. Recording Basics

Jesse Livermore’s system emphasizes the importance of recording stock movements meticulously. Here’s how the basics of recording are laid out:

Upward and Downward Trends

• Upward Trend: Prices are recorded in black ink.
• Downward Trend: Prices are recorded in red ink.

Other Columns

• Prices in the other four columns are recorded in pencil.

2. Drawing Lines and Their Significance

Drawing lines in the system is not just a mere act of recording; it signifies specific movements and transitions:

Upward Trend Column

• Red lines are drawn under the last recorded price the first day figures are recorded 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.

Natural Reaction Column

• Red lines are drawn under the last recorded price the first day figures start in the Natural Rally or Upward Trend columns. This starts on the first rally of approximately six points from the last price in the Natural Reaction column.

Downward Trend Column

• Black lines are drawn under the last recorded price the first day figures start in the Natural Rally column. This begins on the first rally of approximately six points from the last price in the Downward Trend column.

Natural Rally Column

• Black lines are drawn under the last recorded price the first day figures start in the Natural Reaction or Downward Trend columns. This starts on the first reaction of approximately six points from the last price in the Natural Rally column.

3. Transitioning Between Columns

Transitioning between columns is a crucial aspect of the system, indicating shifts in stock movements:

Natural Rally to Upward Trend

• 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 entered in black ink in the Upward Trend column.

Natural Reaction to Downward Trend

• When recording 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 entered in red ink in the Downward Trend column.

4. Understanding Secondary Movements

Secondary movements, as opposed to primary or natural movements, provide insights into shorter-term fluctuations:

Secondary Rally Column

• If a rally occurs after recording in the Natural Reaction column and it’s approximately six points from the last recorded figure, but doesn’t exceed the last price in the Natural Rally column, the price should be recorded in the Secondary Rally column. Recording continues here until a price exceeds the last figure in the Natural Rally column.

Secondary Reaction Column

• If a reaction occurs after recording in the Natural Rally column and it’s approximately six points, but the price isn’t lower than the last figure in the Natural Reaction column, the price should be entered in the Secondary Reaction column. Recording continues here until a price is lower than the last price in the Natural Reaction column.

5. Key Price Recording

The Key Price is a unique aspect of Livermore’s system, and it has its own set of rules: The same rules apply when recording the Key Price. However, the basis is twelve points instead of six points used for individual stocks.

6. Pivotal Points and Their Importance

Pivotal Points are central to Livermore’s system, acting as markers for significant stock movements: The last price recorded in the Downward or Upward Trend columns becomes a Pivotal Point as soon as recording begins in the Natural Rally or Natural Reaction columns.

After a rally or reaction ends, recording starts again in the reverse column, and the extreme price in the previous column becomes another Pivotal Point. These Pivotal Points are crucial for anticipating the next significant movement.

Leveraging Livermore’s System for Informed Decisions

Jesse Livermore’s Pivotal Points Trading System is a testament to the importance of structured recording and interpretation in stock trading. By understanding the distinctions between primary and secondary movements and the conditions leading to entries in the secondary columns, traders and investors can make more informed decisions. This system, with its emphasis on Pivotal Points, remains an invaluable tool for those navigating the stock market.