An upper trigger line joins points one and two, sloping downward on a falling pitchfork. Breakouts above the upper trigger line suggest further upside, while breakdowns below the lower trigger line predict further downside. Andrews' Pitchfork can be easily applied to price charts without a specialized drawing tool. In general, traders will purchase the asset when the price falls near the support of either the center trendline or the lowest trendline. Conversely, they'll sell the asset when it approaches the resistance of either the centerline or the highest trendline.
Even though the centerline can be used to identify areas where a security may find support or resistance, it is generally not as strong as the two outside lines. In practice, the levels identified by this indicator are very useful for identifying strategic positions for stop-loss orders.
Traders could enter a long position when the price of a security reaches the bottom trend line of the indicator. Conversely, a short position might be undertaken when the price hits the upper trend line. Traders may consider booking partial or all profits when the security's price reaches the opposite side of the pitchfork. Before entering a position, traders should ensure that support and resistance are stalling at these levels. Andrews' Pitchfork can also be used to trade breakouts above the upper trend line and breakdowns below the lower trend line.
Traders using this bilateral strategy should be cautious of head fakes and look at other indicators to gauge the strength or weakness of the breakout or breakdown. The on-balance volume OBV accumulation-distribution indicator is a good choice for evaluating the volume that accompanies breakouts and breakdowns.
Traders and investors can optimize this task by experimenting with different reactionary highs and lows, constructing and reconstructing the indicator to identify the most effective price points. Technical Analysis Basic Education. Your Money. Personal Finance. Your Practice. Popular Courses. What Is Andrews' Pitchfork? Key Takeaways Andrews' pitchfork is a method that uses a series of three trendlines to identify trends and reversals.
Higher and lower trend lines denote support and resistance. Andrews' Pitchfork can provide momentum traders with signals in the long- or intermediate-term, where it is most useful in predicting more protracted market swings. It is recommended to always confirm pitchfork breakouts and breakdowns with other technical indicators. Compare Accounts. With the same respect, once the median-line is broken as resistance it will serve as support for a rally into the upper parallel - and the opposite when the median-line is broken as support median-line will offer resistance on a move into the lower parallel.
The simplest way to get started in pitchfork analysis and median line trading is to identify an initial trendline of support or resistance that the market has been responding to. The parallel should now serve as the support and resistance structure for the trend and as the market continues to advance, look for pivots off corresponding parallels of that slope for further validation that we have identified the proper gradient or angle of the trend.
A parallel of this slope extending off the low was critical in identifying support on the late-April decline as Aussie was in free-fall. But where would we look for resistance on this reversal off support? Enter the pitchfork.
Indeed, a parallel bisecting the channel extending off the September low offered a clear pivot in early and was an effective target for the rally which capped out just higher later that month. Consider the same chart above.
A pitchfork can be applied by using the three reference points of the most recent low-high-low into the open blue arrows , offering an up-trend to work with. As often will be the case, the slope is IDENTICAL to the previous slope derived off the subsequent April high- meaning this formation would have alerted us much earlier to where the April rally ultimately found resistance.
Note that on each subsequent rally, the advance reversed off the median-line with the final attempt in August ultimately pulling back into the lower parallel. This simple drill is meant to highlight that identifying the proper gradient, more-so than the tool used, is the most important aspect of slope analysis- obviously the earlier the better. Once you have clearly identified a slope, parallels extending off key highs and lows will often times offer clear pivots in price and will be levels of interest for both targets and entries.
Pitchforkscan be extremely useful in identifying key reaction levels within market trends and once mastered, can be a crucial part of your trading strategy. Always keep in mind that the primary focus is to give structure to the market and better locate points of interest for trade opportunities.
In part three of the series, our article on Multi Time Frame Analysis discusses combining pitchforks with various overlay indicators. This can help in identifying opportunities in both price and time to offer a more holistic trading approach. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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Andrews' Pitchfork is a technical indicator is underused in the currency markets, but it can help you isolate profitable opportunities. Andrews' Pitchfork is a technical indicator that uses three parallel trend lines to identify possible levels of support and resistance as well as potential. The Andrew's Pitchfork indicator is a tool used for trend trading and also to predict market reversals. It helps you identify a channel in which an asset is.