Pivotal Point Theory

I recently read a passage on Jessie Livermore – the infamous early 20th century trader, in which the author described “The Pivotal Point Theory”. Here is a passage on Livermore’s theory (via Pensionpulse):

“The pivotal point theory allowed Livermore the chance to buy at the exact right time. He never wanted to buy at the lowest price or sell at the top. He wanted to buy at the right time and sell at the right time.

This required patience to wait for the perfect trading moment to form. He did not care if the right formation did not occur on a particular stock he was following, because the pattern would appear on another stock sooner or later. Patience, patience, patience – that was the key.

Livermore always considered time as a real and essential trading element. He often would say it’s not thinking that makes the money – it’s sitting and waiting that makes the money.”

His decision was always clear, as he wrote in his own book, published in 1940, How to Trade Stocks:

“When a speculator can determine the Pivotal Point of a stock and interpret the action at that point, he may make a commitment with the positive assurance of being right from the start.

But bear in mind when using Pivotal Points in anticipating movements, that if the stock does not perform as it should, after crossing the Pivotal Point, this is an important danger signal.

I have found the study of Pivotal Points fascinating almost beyond belief. You will find a golden field for personal research. You will derive a singular pleasure and satisfaction from successful trades based on your own judgment. You will discover that profits made in this way are immediately more gratifying than any which could possibly come from tips, or the guidance of someone else.

If you make your own discovery, trade your own way, exercise patience, and watch the danger signals, you will develop a proper trend of thinking. Every time I lost patience and failed to await the Pivotal Points and fiddled around for some easy profits, I would lose money.”

I don’t usually pay much attention to traders, but Livermore wasn’t an average trader. Plus I find this idea pretty interesting, although I’m not sure how it could be applied to fundamental analysis.


~ by eboro on November 1, 2008.

One Response to “Pivotal Point Theory”

  1. the difference between insisting on time and not being obsessed by timing is a good one to highlight.

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