Chapter 5: Key Pivot Points 

Chapter 6: The Million-Dollar Mistake 

Whenever I patiently waited for the market to reach what I call a "key pivot point" before taking action, I always profited from my trades. Why? Because in such cases, I was choosing precisely the critical psychological moment that signaled the start of a price movement. I never had to worry about losses, and the reason was simple: I acted decisively the moment my trading rules sent a signal, and built up my positions gradually according to those signals. After that, all I had to do was sit back and let the market unfold its course naturally. I knew that by doing nothing more than this, the market itself would send a signal at the right time, telling me to close out my position and take profits. Every single time I summoned up the courage and patience to wait for such a signal, I achieved my goals methodically without exception. My experience has consistently shown that if I failed to enter the market shortly after a trend began, I never made substantial gains from that move. The reason, perhaps, is that failing to enter in a timely manner meant forfeiting a significant reserve of profits—and this reserve was an essential source of courage and patience for the rest of the trend’s duration. It served as a reliable buffer to keep me steady amid the various minor pullbacks or rallies that the market inevitably experienced from the start to the end of a trend. 

"Rome was not built in a day." Neither does any major market movement happen overnight or within a single week. It takes time to gradually complete the entire process of initiation, development, and conclusion. In any given trend, the bulk of the price movement occurs within the final forty-eight hours of the whole process. This is the most critical period to hold a position—in other words, you must stay in the market and hold your position during this window. This point is crucial. 

For example, in an uptrend, if the price rebounds 3 points near the bottom of a consolidation range, or breaks below the bottom of the range but then moves back above it, you should enter a long position. 

If a speculator can identify the key pivot points of a particular stock and use them to interpret market movements, they will be able to establish positions that remain profitable from start to finish with a high degree of certainty.

When using key pivot points to anticipate market movements, one rule must always be kept in mind: if the stock fails to behave in the expected pattern after breaking through a key pivot point, this is a danger signal that demands close attention. 

I consider this an important caveat: you must closely monitor how the subsequent price action unfolds. I have found that if a stock breaks through a key level but lacks follow-through momentum, the market is prone to reverse direction—thus, you should act decisively and close out your existing position immediately.

In Chapters Nine and Ten of this book, I explain in detail how I combine my more sophisticated methods for identifying key pivot points with the Livermore Market Principles. 

It advises you to review historical price records and examine what major market movements ultimately unfolded under a series of similar conditions in the past. It is telling you that with thorough analysis and sound judgment, you have the ability to form your own opinions. 

In accordance with my trading practices, first, you need to assess the potential scale of a future price movement for a specific stock. Second, you must determine the exact entry price—and this is a critical step. Study your price records and carefully analyze the price action over the past several weeks. You should have already identified in advance that if the selected stock is indeed about to initiate a new move, it should reach a certain price level. When it does hit that level, that is precisely the moment to establish your initial position. （buy pull back）

After entering your first position, you must clearly define the maximum amount of risk you are willing to take if your judgment turns out to be wrong. If you act in accordance with the principles outlined here, you may incur losses on one or two positions. However, if you remain consistent—persisting in re-entering the market whenever it reaches your identified key pivot points—you will definitely be in the market when a genuine major movement commences. In short, you cannot afford to miss out on such opportunities.

Nevertheless, choosing your timing with prudence is absolutely essential; acting prematurely will lead to costly consequences.