Currency Forex Online Trading
Andrew's Pitchfork
CurrencyForex Online Trading: Andrew’s Pitchfork was developed by Dr. Alan Andrew’s. It consists of a median trend line with two parallel trend lines spaced equally above and below it. It is similar to a trend channel with the upper and lower bands providing areas of potential resistance and support. With an effective Andrew’s Pitchfork, prices will fluctuate within these lines and offer trading opportunities as long as the trend lasts. It can be applied in all time frames, intra-day and daily, weekly or monthly.
Construct the pitchfork using the following method:
- Select a significant top or bottom in the time frame under study.
- Select a swing top and bottom that form after this point.
- Connect the swing top and bottom with a line.
- Calculate the centre point of this line.
- Draw a line from the initial significant top or bottom through the centre point (Point 1 on the chart below) and extend this line into the future. This is the median line.
- Construct lines parallel to the median line from the swing top and bottom (Points 2 and 3 on the chart below).
After this process is complete it remains to be seen whether the pitchfork works. Look for prices to react off the trend lines. If this occurs then traders can use the pitchforks trend lines as buying and selling levels.
If the price action “fits” the pitchfork it can be a very effective tool. Traders will use this tool in different ways depending on their trading strategy. One of the assumptions in using Andrew’s Pitchfork is that prices will return to the median line 80% of the time. For example, in an uptrend, if prices react off the upper parallel line, traders often wait for a decline to the median line in anticipation of support and a buying opportunity. If prices break through the median line, it is anticipated that prices will continue on to the opposite parallel line.
Traders may also buy at the lower support parallel line in anticipation of a rally back to the median line. Similarly in a downtrend traders may go short at the upper resistance line in anticipation of a retracement back to the median line. Depending on their appetite for risk some will enter when the line is touched while others will wait for prices to turn first.
Examine the daily candlestick chart of the EUR/USD below. Prices react close to the upper line on 1st February 2011 before declining back to the median line, a buying opportunity for many traders. The median line then provides excellent support to the market until mid-May. Exit strategies will also differ between traders but a popular option is to wait for the market to rise to the upper parallel line again.
View charts in interactive mode at ProRealTime.com.
The next chart of the EUR/USD did not work so well. Prices could not break above the median line and ultimately could not support prices for long.
Best Currency Forex Online Trading: Andrew's Pitchfork
Andrew’s Pitchfork works in a downtrend as well. Examine the 15 minute bar chart of the AUD/USD below. This chart demonstrates another aspect of how the pitchfork is used. If prices briefly break through the upper or lower parallel lines, some traders draw a further parallel line from the high or low. See how prices broke below the lower band at 14:45. A parallel line (the red line) drawn from this low provided support later. The same technique worked at the upper level. Prices broke through the upper band at 16:15. A parallel line drawn from the high provided resistance later.
Best Currency Forex Online Trading: Andrew's Pitchfork
The previous examples have been picked in hindsight which is easy to do. Of course, as with all indicators, there is no guarantee that it will work. Traders must continuously draw and redraw the pitchfork from different points to find one that is working. An example of the next chart is the USD/CHF. Many charting programmes provide this feature so it is not a laborious process.
Best Currency Forex Online Trading: Andrew's Pitchfork
Andrew's Pitchfork can be used in trading Stocks, Exchange Traded Funds, Forex, Commodities, Bonds, Futures, etc. Traders should always implement appropriate risk management and stop loss strategies.
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