It is essential to understand that while the Reversal Pivotal Point marks a definite change in direction, the Continuation Pivotal Point confirms that the move is proceeding in the proper direction.
For Livermore, a stock’s price is never too high to Buy Long or too low to Sell Short. Waiting for these Continuation Pivotal Points signals gave him the opportunity to either open a new position or to add to a current position. But do not chase a stock if it gets away from you—let it go.
Livermore would rather wait and pay more, after the stock had regrouped and formed a new Continuation Pivotal Point, because this provides a confirmation and mental insurance that the stock will most likely continue with its move.
By correctly catching Continuation Pivotal Point, Livermore was able to make his initial purchase so that he had an entry point at the right price at the beginning of the move. This ensured that he was never in a loss position and could therefore ride out the normal stock fluctuations without risking his own capital. Once the stock had moved off the Pivotal Point Livermore was only risking his paper profits, not his actual capital, because he was “in profit” from the beginning of the trade.
Livermore would rather wait and pay more, after the stock had regrouped and formed a new Continuation Pivotal Point, because this provides a confirmation and mental insurance that the stock will most likely continue with its move.
By correctly catching Continuation Pivotal Point, Livermore was able to make his initial purchase so that he had an entry point at the right price at the beginning of the move. This ensured that he was never in a loss position and could therefore ride out the normal stock fluctuations without risking his own capital. Once the stock had moved off the Pivotal Point Livermore was only risking his paper profits, not his actual capital, because he was “in profit” from the beginning of the trade.
Livermore defined Continuation Pivotal Point as a consolidation, which mean it is a range rather a specific price level. It gives the stock a chance to consolidate, often allowing a stock’s ratio of earnings and sales to catch up to its current price. It is usually a natural reaction in the stock’s progress.
The Pivotal Point (either the Reversal or the Continuation point) is the only tip-off you need to trade and win. A trader has to be patient, because it takes time for a stock to run its logical and natural course to form a proper Pivotal Point, then breakout off its range. It will not be willed or forced forward by an impatient trader. It will come as a natural event. Be Patient!
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