Jesse Livermore traded pivots

...continued from yesterday...

Jesse Livermore described an entry method for trading stocks priced at around $30 based on pivots. Jesse was the "World's Greatest Stock Trader", according to author Richard Smitten.

In a downtrend, as new lows are made, if prices rally upwards by $6 from that new low(for stocks priced at above $30), that new low (in hindsight) would be labelled a Downtrend Pivot. Then as the rally stopped and prices dropped by $6 from the highest rally point, that highest rally price (in hindsight) would be labelled a Natural Rally Pivot. When this pair of pivots are identified, one further setup condition has to be satisfied to trigger an entry: Price has to decline back towards a zone that is $3 above and $3 below the Downtrend Pivot (herein called the “Downtrend Pivot Zone”).

When price enters the Downtrend Pivot Zone, an entry is triggered depending on how price exits that Downtrend Pivot Zone. If price breaks out to the upside, Jesse would BUY. If price breaks out to the downside, Jesse would SELL SHORT.

In an uptrend, the reverse is done.

For details about Jesee's Pivot Price entry method, see his book (published in 1940) How to Trade In Stocks

An updated edition of the book has been edited by Richard Smitten, How to Trade in Stocks : The Livermore Formula for Combining Time Element and Price (Revised Ed)

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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