Livermore Trading System

Livermore only took positions in the direction of his trade.

Livermore used Pivot point (P) for entry levels.

The Livermore System defines the market in terms of trend and swing.

  • An upswing, for example, is a consecutive series of higher pivot highs and higher pivot lows. An uptrend is a consecutive series of upswings.

  • A downswing is a consecutive series of lower pivot lows and lower pivot highs. A downtrend is a consecutive series of downswings.

He never bought at the low. he waited for a change in trend and then starting buying on evidence that the trend was continuing. He waited for the trend to be broken and two reactionary pullbacks to take place, then as the stock traded above the second reaction high he would enter the trade.

Livermore used penetrations of the pivot points, marked by "P" on the swing chart, to either add new positions when they occurred in the direction of the trend, or as stop-loss levels when they occurred in a direction opposite to the trend.

All positions were liquidated at the first penetration of a stop-loss level. A second penetration of the next occurring pivot in the direction of the new trend confirmed the new trend.

A new trend "failed" when the second confirmation did not occur. In those cases Livermore would reenter in the direction of the prior trend when prices exceeded the size of the swing filter from the failed trend's highest high or lowest low.

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