The Andrews pitch fork indicator commonly known as ‘median lines’ is still among the most versatile trading applications out there.
We shall learn more about the fundamentals of index and strategies you should use to determine resistance and support levels.
- Plotting that the Andrews Pitchfork Tool Correctly
- Trading approaches using Andrews Pitchfork Tool
- 1. The Price Failure Rule
- Real-Life Long Example
- 2. The Mini-Median Line Method
- Real-life Long Trade Example
- 3. The Flat Price Action Method
- Short Trade Example
- Long Trade Example
- Day Trading for this particular Approach
- 4. Andrews Pitchfork Tool and Divergence
- Divergence in the middle the Pitchfork and Relative Strength Indicator
- Elliott Waves along with Andrews Pitchfork
The Inspiration for your Andrews Pitchfork
Dr. Alan Andrews drew inspiration from Roger Babson to the Invention of this Pitch Fork.
Roger developed the idea of action/reaction lines later seeing a considerable store correction at early 1900s.
After seeing countless dollars evaporate into thin atmosphere, Babson believed that his action/reaction traces were a preventative step for prospective prospective investors by providing amount actions for extreme resistance and support are as on the store.
Like Andrew, Babson also took inspiration from the following brilliant man – Isaac Newton.
Babson’s traces were motivated by the works of Isaac Newton as well as the laws of gravity. The majority of the pitch fork ‘s theories are focused around Newton’s third law that says “For every action, there is an equal and an opposite reaction. ”
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If this has been tough to follow along, let’s ‘s immediately recap.Andrew pulled inspiration from Babson who additionally pulled inspiration from Newton.
Why is it important to understand? You want to understand that whilst the index appears like some thing an intelligent fourth-grader might have generated, plenty of idea was awarded into the index.
Overview – Andrews Pitchfork
Shifting back into Andrews pitch fork, the index remains actually a median line using an upper and less parallel lineup.
The graph beneath illustrates an example median lineup or Andrews pitch fork employed to some share graph.
Andrews Pitchfork tool
Time Frames and Markets
The Andrews Pitch Fork functions in almost any given time period. This, needless to say, can include tick graphs . This enables the index to work for stock investing and longterm investment.
The index may also focus with almost any security. Therefore, if you enjoy to trade crypto currencies, futures stocks, the pitch fork has you covered.
Plotting that the Andrews Pitchfork Tool Correctly
Traders will need to spot the ideal points whilst the failure or success of translating signs depends largely on just how many plots the intermediate lines.
In the majority of instances, drawing on the median lines is quite subjective, but with exercise, an individual could form the confidence demanded. An extremely straightforward method is after battle points have been identified, tweak the median lines to encapsulate amount actions with the best amount of accuracy.
Trading strategies using Andrews Pitchfork Tool
There are various trading strategies which could be constructed utilizing the Andrews’ pitchfork tool.
According to Alan H. Andrews, there is a high probability of the following:
- Price will reach the latest median line
- Price will either reverse on reaching the median line or gap through it
- When amounts pass through the median line, more often than not, amounts pull back to the median line
- When amount reverses before reaching the median line, it is likely amount will move in the opposite direction
- Prices will reverse at any median line
One of the major factors that work in favor of median lines or the pitchfork tool is that various studies have shown and proven the fact there is an 80% chance for any of the above Andrews’ rules to become fulfilled.
Is any of this making sense?
Well, let’s talk through four simple methods you’ll be able to trade with the application joining the above mentioned rules.
1. The Price Failure Rule
One capacity of Alan Andrews’ is the amount failure decree which often catches the larger trading community by surprise.
The amount failure decree was well documented and explained by Gordon DeRoos, in his book, “Trading With The Pitchfork”.
If you follow this link you can see both the book and trading coursework which goes into excruciating detail.
The amount failure decree forces the trader to look at what amounts are not doing, rather than following the herd.
It is widely known that amounts gravitate to the median line 80% of the time.Once at the median line, there are two possibilities – amount will either gap through the median line or reverse course.
With the amount failure decree, traders focus on the factor of when amount fails to reach the median line.
A trader waits for the amount to reverse near the median line and waits for the strong counter move.
Real-Life Long Example
The chart beneath illustrates the amount failure decree with the QQQ PowerShares ETF. Here, you can see a falling pitchfork encapsulates the downtrend nicely. In this scenario, conventional wisdom states to look for a short position.
Pitchfork – Price failure method
However, notice how amount bounces back and forth in the middle the median line and the outer median line. The final bounce off the upper median line shows amounts failing to reach the median line. This eventually leads to a cost reversal higher.
For traders, this would have been a surprise on the sudden change in direction in the stores and lead to a short squeeze once the daily highs were exceeded.
2. The Mini-Median Line Method
The mini-median line method involves drawing two opposing median lines. As the name suggests, the mini-median line is smaller in scope and signals a counter move to the primary pitchfork tool.
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Another unique aspect of the mini-median line methods is that closing amounts are used instead of the high or low amounts.
Once a counter or opposing median line is plotted over 5 to 10 bars, the mini-median line can be used as a trade trigger. Alongside the mini-median line tool, we also need to plot a sliding parallel line.
Real-life Long Trade Example
The overall slope of the primary pitchfork suggests amounts will go on to push higher.
Mini-median line trading method
As you can see, there are two mini-median lines on the chart. Once the amount breaks the before all else mini-median line, the share gaps higher up to the median of the primary pitchfork.
The share then pulls back and forms another mini-median line. Once this line is broken, the share runs 5% up to the primary pitchfork median line.
These are just two examples of how you can use trends within a trend to identify purchasing opportunities.
3. The Flat Price Action Method
In the flat amount action method, the trader needs to look for amount to stall near the median line.
This method is usually indicative that amounts are likely to change direction and is a cousin of the amount failure method. The one difference is the amount failure method does not require consolidation before taking a position.
For the flat amount action method, amounts need to move in a strong rally before all else, typically from the third pivot point. The fewer pullbacks in this leg of the formation, the better.
Once amount hits the median line, look for consolidation near the median line.
Typically amount breaks to the downside and posts a strong correction back to the third pivot point.
Short Trade Example
Flat amount action method (Short trade example)
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Here, you can see the strong move from the pivot low and amounts failing to break the median line convincingly. This develops into a consolidation range in the middle 37.89 and 35.50. The break down from 35.50 sends amounts back to the third pivot point at 29.65.
Long Trade Example
Flat amount action method (Long trade example)
In this example, amounts post a steady decline from the third pivot point high. We then obtain some consolidation in the middle 75.99 and 72.27.
The upside breakout from this range sends amounts higher with a target of the third pivot point high at 79.47.
Day Trading with this Approach
Day trading with this approach will prove challenging. This is because consolidation often takes place in the middle of the day, where the store slows down.
Therefore, if you are going to day trade this pattern, you need to begin looking for setups in the early afternoon around 2 pm for late day breakouts.
4. Andrews Pitchfork Tool and Divergence
Another way to trade the Andrews pitchfork tool is to look for divergences in the middle the pitchfork and another indicator or amount.
Divergence in the middle the Pitchfork and Relative Strength Indicator
In this before all else example, you can see how the bearish divergence was formed with amount making a higher high while the relative strength index was seen making a lower high. Following this high that stalled near 16.60, amount eventually broke down through the lower median line following the amount failure.
Pitchfork divergence method – Short position
In the next chart, you can see that while amounts posted a lower low, the 13 period RSI signaled a higher high, which indicated a bullish divergence in amount. The fact that amounts stalled near the median line indicated that amount would be reversing upward shortly.
Pitchfork divergence method – Long position
Following the breakout from the outer median line, we can see that the long position resulted in a benefit as amount continued to push higher.
Besides the RSI, other oscillators that can be used include the MACD and stochastics.
Elliott Waves and Andrews Pitchfork
In many cases, the concepts of Elliott wave can be applied to the median line itself. Not many traders have fully grasped this method, but when combined, median lines and Elliott wave can be a great way to trade the store with confidence.
Andrews’ Pitchfork tool and Elliott Waves
The aforementioned chart provides succinct example of Elliott wave points which match with all the Andrews’ pitchfork tool.
As you can see the Elliott wave counts fit nicely within the pitchfork. For example, if you have a wave five failure that barely ticks over the third wave high and also fails at the median line, you can use this as validation of the wave pattern.
Like any other indicator, the pitchfork is not perfect. You will need to have solid money management techniques in place before placing any live trades.
The key is to have a set of rules you follow and to remember to keep your stops.