Weekly Insights: Andrews Pitchfork – a Cool Secondary Tool
Andrews Pitchfork: a Cool Secondary Tool
The Andrews Pitchfork Trend Lines Indicator is yet another one of my secondary trading tools, which I use to supplement my primary trading tools, including basic trend lines and chart patterns, trader psychology, and fundamental analysis. The secondary trading tools help to confirm what my primary trading tools may be telling me.
The Andrews Pitchfork is a trend-line study developed a few decades ago by Dr. Alan Andrews. Also known as the Median Line Study, it consists of three parallel trend lines, drawn on a chart, which resemble a farmer’s pitchfork. The upper and lower lines of the pitchfork provide a channel of support and resistance levels. Basically, when a significant “correction” from an overall price trend occurs, the user measures that correction and draws and projects trend lines from it.
Remember, trend lines can be applied to all markets in all time frames. An uptrend finds prices bouncing upward, off the supporting uptrend line. A downtrend finds prices bouncing downward, off its resisting downtrend line. In an uptrend, the trend line provides a potential buying point at each potential bounce. If the market is still trending higher (meaning the uptrend line has not been negated), no sell signal is given. However, by drawing parallel lines to the trend line (e.g., the Andrews Pitchfork study), a channel can be created that contains short-term rallies and declines within the general trend. The bottom trend line can be used to buy into the rally and the top trend line can be used to take short-term profits. After selling, the trader would then wait for the market to hit the bottom trend line to buy again. This is very similar to the “swing trading” method about which I have written previously.
With the Andrews Pitchfork technical study, a trader will pick an extreme low or high on a chart to define a “pivot point” and then draw a trend line, called the median line. Then the trader bisects a line drawn through the next corrective phase on the chart occurring after the pivot point. Lines parallel to the median line are drawn through the high and low points of the corrective phase — hence the look of a pitchfork
Pitchforks can also help identify trading channels before simple parallel trend lines can be drawn. By using an already established market move (correction) as the width of the channel, the median and parallel lines can be constructed, giving the trader early targets for short-term trading within the new trend. These market retracements generally occur at Fibonacci levels, so a pitchfork can almost be considered to be Fibonacci lines on an angle.
The double channels of the Andrews Pitchfork serve to identify a longer-term trend at the same time as the shorter-term trend. If counter-trend moves are smaller than the overall channel width, the primary trend will remain intact. While trading from one end of the channel to the other may present short-term trading opportunities, breakouts from the overall channel may indicate true trend changes. The latter should be combined with simple trend line analysis for a more reliable signal.
Dr. Andrews’ rules state that the market will do one of two things as it approaches the Median Line: Prices will reverse at the median line or prices will trade through the median line and head for the upper or lower parallel lines and then reverse. Andrews suggested that prices make it to the median line about 80 percent of the time while the price trend is in place. This means that while the basic long-term price trend remains intact, Andrews believed that the smaller trends in price would gravitate toward the median line while the larger price trend remained intact. Importantly, when that does not occur, it may be evidence that a reversal in the larger price trend may be underway.
When prices fail to make it to the median line from either side, it is often an expression of the relative bullish or bearish psychology of buyers and sellers and may predict the next major direction of prices. If prices fail to reach the median line while above the median line, it is a bullish signal. If prices fail to reach the median line from below that line, that is a bearish signal.
Drawing the parallel lines can often be more subjective because most of the time markets do not trade up and down in neat channels. Often, “market noise” and overlapping short- and long-term cycles make trading appear irregular. To better measure a trading channel, the Andrews Pitchfork can help by building it around real, objective market activity that is a counter-trend move (retracement or correction).
Just like with horizontal support and resistance levels, markets trade within one range and then move to another, similar range and back again. The Andrews Pitchfork measures a larger trading channel. It is common for a market to trade in the lower end of the channel, jump to the upper end, and then move back to the lower end. During all of this activity, the general trend is still intact. When prices move outside of the larger channel, the overall market trend may have changed.
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This material is produced by Higby Barrett LLC Copyright © 2021. All rights reserved. The views expressed and information contained in this publication are believed to be accurate but not guaranteed by Higby Barrett LLC or the Client. Higby Barrett assumes no responsibility or liability for any action taken because of any information or advice contained in this document, and any action taken is solely at the liability of and responsibility of the user.Back