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The Price Action Tool Ignored By 99% Of Traders (Andrews Pitchfork Stock Trading Strategy) - YouTube
Channel: The Secret Mindset
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The Andrews pitchfork indicator, commonly
referred to as 'median lines' is one of the
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most versatile trading tools available.
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Andrews’ pitchfork consists of a median
line at the center and two parallel equidistant
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trend lines, where the outside trend lines
represent areas of support and resistance.
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Traders often look for buying or selling opportunities
as the price approaches the ends of these
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channels.
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In this chart, for example, the price remains
largely within the bounds of the indicator
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with the exception of several short false
breakouts.
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The Andrews pitchfork works in any time frame.
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This, of course, can range from tick charts
to monthly.
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This allows the indicator to work well for
day trading and long-term investing.
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The indicator can also work on any security.
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So, whether you like to trade forex, futures
or stocks, you can incorporate this versatile
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tool in your analysis.
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The Andrews pitchfork indicator is created
by selecting three points on a chart:
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A beginning point that represents the start
of a trend.
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(We’ll call this point A)
A reaction high coming after the beginning
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point.
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(Point B)
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A reaction low coming after the beginning
point.
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(Point C)
The selection of these points is somewhat
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subjective, but it’s a good idea to experiment
with different reaction highs and lows to
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find what works best.
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In some cases, you may want to plot multiple
Andrews’ pitchforks on the same chart to
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provide an indication of where support or
resistance may be strongest.
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You may also look at different timeframes
to determine long-term and short-term support
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and resistance levels for a given security.
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You need to identify the right points in your
analysis, because the success or failure of
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interpreting signals depends largely on how
you plot the median lines.
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In most cases, drawing the median lines is
rather subjective, but with practice, you
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can develop the confidence required.
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A rather simple method is after pivot points
are identified, tweak the median lines to
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encapsulate price action with the greatest
level of accuracy.
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If you master how to use Andrews pitchfork
, you will have a competitive advantage ahead
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of the market, because you will know the dynamic
support and resistance levels in advance.
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Now, not all three trend lines that make the
Andrews pitchfork react the same.
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They offer different levels of support and
resistance.
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The Andrews pitchfork indicator has three
lines.
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Each line starts from the pivot.
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We have ml (median line), the uml (upper median
line) and lml (lower median line).
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But, they don’t have the same importance.
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By far, the most important one is the median
line.
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It has one big advantage: it attracts price.
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As such, it acts like a magnet.
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Because of that, traders use it to adjust
their trading strategies.
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There are many ways to use this powerful trading
tool.
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Some traders use it as a single indicator.
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Others integrate the pitchfork with other
trading tools.
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In any case, there’s not one Andrews pitchfork
strategy that works all the time.
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The classical way to use this trading tool
is to look after support and resistance levels.
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As you know, when we analyze a price chart,
we can find classic and dynamic support/resistance
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levels.
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With this tool however, the dynamic ones are
more valuable.
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The bigger the time frame, the more powerful
the reaction from the levels will be.
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The idea is to integrate the dynamic support/resistance
rules with Andrews pitchfork power.
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Pay attention at this example.
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The three pivots (a, b, c) give the angle
and the shape of Andrews pitchfork.
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The resulting lines act as future dynamic
support/resistance levels.
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As always, once a level gets broken, resistance
turns into support.
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And, the other way around.
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Judging by the current prices, the outlook
looks bullish.
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The key here is the medial line.
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Many traders misinterpret how to use Andrews
pitchfork’s ml.
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While it attracts the price, it doesn’t
offer any support.
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Nor resistance.
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Just the fact that it pierces it is enough
for a strong trend.
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Strong trends see the ml guiding the price
action.
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Eventually, the price will pierce it multiple
times.
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As a rule of thumb, while the price stays
within Andrews pitchfork lines, the trend
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will keep going.
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The fact that it pierces the ml multiple times
shows strength.
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Hence, you must not use this as support or
resistance.
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Here is another example, to make it very clear.
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We identified, the A point as the start of
the move.
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Next, the B is the end of the first drop.
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Finally, the C point is the end of the first
swing higher.
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The resulting Andrews pitchfork shows a very
strong downtrend.
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Even if the price gets above the upper ml,
the bearishness is overwhelming.
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On top of it, the ml attracts the price on
a constant basis.
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Furthermore, the upper ml and lower ml act
as strong support and resistance levels.
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Using Andrews pitchfork this way gives dynamic
support and resistance levels.
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But, this is valid only for the upper median
line UML and lower median line LML.
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For the median line ML, multiple piercings
simply show how strong the trend is.
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In this case, very strong.
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However, how do we know when the trend ends?
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When should bulls consider a bottom is in
place?
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The way to answer these 2 questions is to
use the Schiff line.
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Few traders know about the Schiff line’s
existence.
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This is a line that connects the a point and
c point.
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As such, traders know in advance where the
Schiff line is.
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In strong trends, the price has a strong tendency
to move away from it.
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As a rule of thumb, a bearish trend keeps
going as long as the price stays below the
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Schiff line.
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Of course, the opposite happens in a bullish
trend.
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Here’s the Schiff line on the previous chart.
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It shows when the bearish trend ended.
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In fact, it shows when bears should not consider
selling anymore.
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Because the Schiff line gets broken, it means
bulls will step in on any future pullbacks.
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Now, based on the median lines and the Schiff
line, the two most common strategies falling
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under the s/r umbrella include:
Buying/selling the bounce.
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Traders may buy when prices hit the bottom
of a channel, but only in an uptrend and sell
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when prices hit the top of the channel only
in a downtrend.
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In these cases, it’s important to wait for
confirmation that the price is responding
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to these levels.
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Here are several examples of buying the bounce.
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The second strategy involves, buying/selling
the break.
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Traders may buy when the price produces a
breakout from the top of a channel or sell
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when price breaks from the bottom of the channel.
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In these cases, it’s important to look for
a clean break to avoid false breakouts.
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My favorite way to use the Andrews pitchfork
is to look for divergences between the pitchfork
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and RSI.
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If you followed by channel, you know that
i consider the divergence one of the most
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powerful leading signals you could get.
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So I look to buy or sell the breakout from
the pitchfork, only when i see a divergence
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on the RSI.
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This is powerful stuff, and let me demonstrate
it.
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In this first example, you can see how the
bearish divergence was formed with price making
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a higher high while the relative strength
index was seen making a lower high.
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Following this, price eventually broke down
through the lower median line following the
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price failure.
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In the next example, you can see that while
prices posted a lower low, but the RSI signaled
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a higher high, which indicated a bullish divergence
in price.
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This leading signal suggested that price would
be reversing upward shortly.
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Following the breakout from the upper median
line, we can see that a long position resulted
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in a profit as price continued to push higher.
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I strongly encourage you to search for this
pattern on your charts.
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Here are other trades based on RSI divergences
and Andrew’s pitchfork breakouts.
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Andrews’ pitchfork is a great price action
indicator to use when determining areas of
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support and resistance.
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While it’s not perfect in every scenario,
the indicator provides a good indication of
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where prices may be headed.
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The downside is that picking the main three
points is a largely subjective process that
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requires experience to master.
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The Andrews pitchfork as a trading tool has
a bit of mystery for retail traders.
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While everyone knows to use it in a trend,
few know how to master it.
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The key stays with the main 3 pivot points.
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If you learn to draw them correctly, the Andrews
pitchfork indicator works like a charm.
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Here’s one last important tip: a great way
to use this tool is to perform a top/down
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analysis (meaning to study all timeframes).
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Start from the biggest one (monthly) and continue
with the weekly chart, daily and the four-hour
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one.
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A multi-timeframe analysis with Andrew’s
pitchforks will result in a better understanding
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of market conditions.
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If you got any value from this and learned
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Until next time.
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