Trading with Andrews Pitchfork. The chart below shows after how the pitchfork was drawn on the chart, the pullbacks within the downtren d offered a quick opportunity to sell while booking profits at past support levels. This market could have been continuously traded by keeping in mind the rules of Pitchfork trading. The chart below is a continuation of the above chart, where we notice price failing to reach the median line , indicating a reversal. To illustrate this point take a look at the chart below.

And as price progressed, notice in the next chart how price reacts to these levels that were initially drawn based on the Pitchfork tool. Because the pitchfork tool can serve as an early indicator of trend reversals, pitchforks can be used with Channel trading or with an indicator based trading system.

The charts below show the Andrews Pitchfork tool indicated a potential reversal early on. If only the moving average was used as a trend indicator, then as you can see traders would have missed a big amount of pips in lost trading opportunity. The next chart below shows how plotting the pitchfork within the channel offers some great insights into possible trades.

Here, we see that price is within an up sloping channel; therefore we prefer to buy near the channel lows.

But what is the guarantee that the lower channel line will hold, especially after there was a fake out at the lower channel line the last time it was tested partly shown on chart.

When we use the pitchfork tool and connect the swing points, we can see that price starts consolidating strongly near the median line as well as the lower channel line. Notice after price breaks out of the pitchfork, it rallies, only to retest the support level close to the lower channel line before rallying. Therefore, experienced specialists recommend practicing with this tool on history to better feel which reference points need to be put.

Entrance to the market is carried out in the direction of the pitchfork indicator using moving averages or Stochastic Oscillator as additional filters. You can use any method of your choice, but experienced traders often combine multiple market analysis for more accurate entries. The handle median line shows the strength of the trend: in strong uptrend conditions, price tends to be above the median line while in a strong downtrend, below.

The general rule of thumb is to use the version of the pitchfork that encapsulates the trend the best. Therefore, there could be difference among the traders trading this tool. It is recommended to always confirm pitchfork breakouts and breakdowns with other technical indicators. If you are looking to trade forex online, you will need an account with a forex broker. If you are looking for some inspiration, please feel free to browse my best forex brokers.

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I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me. It is created by placing three points at the end of previous trends and then drawing a line from the first point that runs through the midpoint of the other two points.

The reason this indicator is called a "pitchfork" becomes apparent from the shape that is created in the chart. 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 center line or the highest trendline. Even though the center line 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.

As you can see from the chart above, this stock has found support near the bottom trendline twice over the past quarter, which makes positioning a stop loss just below this level a logical choice. If the security breaks above the resistance of the center line in this example, the target will then change to the top line and the center line will then become the new support. It is not uncommon for a trader to sell a security near the resistance of the center line and then see it break through and head higher.

This is the main reason why other indicators should be used to confirm the reversal. Although Andrew's Pitchfork is usually applied primarily to the equities and futures markets, it can help currency traders find profitable opportunities in the intermediate and long term. A disciplined investor who can wait out the choppier forex markets can apply the pitchfork to identify and isolate breakouts to the upside or downside.

A basic price oscillator can then confirm the trade. Ultimately, there are no hard and fast rules about how to place your points and draw the channels; it's a matter of judgment that can only come from experience. Technical Analysis Basic Education. Advanced Technical Analysis Concepts.

Developed by renowned educator Alan Andrews, the technical indicator known as Andrews' Pitchfork can be used by traders to establish profitable opportunities and swing possibilities in the forex market and other markets. On a long-term basis, Andrews' Pitchfork can be used to identify and gauge overall cycles that impact underlying spot activity.

Below, we'll explain two approaches to using this indicator: trading within the lines and trading outside the lines. Andrews' Pitchfork sometimes referred to as "median line studies" is available on numerous programs and charting packages and widely recognized by novice and experienced traders.

As a result, the overall longer-term trend will in theory remain intact, regardless of the smaller fluctuations. If sentiment changes and supply and demand forces shift, prices will stray, creating a new trend. It is these situations that can create significant profit opportunities in the currency markets. A trader can increase the accuracy of these trades by using Andrews' Pitchfork in combination with other technical indicators.

In order to apply Andrews' Pitchfork, the trader must first identify a high or low that has previously occurred on the chart. The first point, or pivot , will be drawn at this peak or trough and labeled as point A as shown in Figure 1.

Once the pivot has been chosen, the trader must identify both a peak and a trough to the right of the first pivot. This will most likely be a correction in the opposite direction of the previous move higher or lower.

In Figure 1, the minor correction off of the trough point A will serve us well as we establish both points B and C. Once these points have been isolated, the application can be placed. The handle of the formation begins with the pivot point point A and serves as the median line. The two prongs, formed by the following peak and trough pair points B and C , serve as the support and resistance of the trend.

The pivot point A has been drawn at a previously occurring trough, and points B and C have been established to the right of the pivot.

The line drawn from point A is the median line, while the two "prongs" serve as support and resistance. When the pitchfork is applied, the trader can either trade within the channel or isolate breakouts to the upside or downside of the channel.

In Figure 2, you can see that the price action works well serving as support and resistance where traders can enter off of bottoms point E and sell from tops point D as the price will gravitate towards the median.

As always, the accuracy of the trade improves when confirmation is sought. A basic price oscillator will be just enough to add to the overall trade. Notice the multiple opportunities offered to the trader inside and outside the boundaries. Additionally, the trader can initiate positions on breaks of the support and resistance.

Two examples are presented at points F and G. Here, the market sentiment shifted, creating price action that strayed from the median line and broke through the channel trendlines. As the price action attempts to fall back into the median area, the trader can capture the windfall. However, as with any trade, sound money management and confirmation must play important roles in execution.

Let's take a look at how a trader might profit from trading within the lines. Zooming in a little closer in Figure 4, we see a textbook evening star formation.

Here, the once-rising buying momentum has started to disappear, forming the doji , or cross-like, formation right below the upper prong.

When we apply a stochastic oscillator , we see a cross below the signal line , which confirms downside momentum. The trader would do well to place the entry at point X Figure 4 , slightly below the close of the third candle when taking these indications into consideration. The entry would be executed on the downward momentum as the price action once again gravitates towards the median line, in practice with sound money management and including an appropriate stop loss. Even better, the trader could make close to pips over the life of the trade.

Here we see a prime example of an "inside the line" profit opportunity as price action approaches the 1. A closer look at the opportunity reveals textbook technical formations that aid the entry. Here, the trader can confirm the trade with the downward crossover in the stochastic and the evening star formation.

Although trading outside the lines occurs less frequently than within, they can lead to extended runs of profit. However, they can be trickier to attempt. The assumption here is that the price action will gravitate back towards the median, similar to wayward price action within the lines. However, it is possible that the market has decided to shift its direction. Therefore, the break outside may be a new trend forming. To avoid a catastrophic loss, simple parameters are added and placed in order to capture the retracements into the channel and, at the same time, filter out adverse movements that ultimately result in traders closing their positions too early.

Looking at Figure 5, we see that the price action at point A offers such an opportunity. Once the break has been identified, we isolate and zoom in to obtain a better perspective. Notice how the price action gravitates once again towards the median. This is a great opportunity, but money management and strategy remain important in capturing the run-up. In Figure 6, the trader is offered multiple opportunities to trade back into the overall trend as the underlying spot consolidates in ranging conditions.

However, the real opportunity lies in the break that occurs in October. Using a moving average convergence divergence MACD price oscillator, the individual sees that a bullish convergence signal is forming, as there is a large peak and a subsequently smaller secondary peak in the histogram. The entry is key here. The convergence in the MACD, combined with the decline in the underlying spot price, suggests a near-term upward break.

In order to place the entry in this example, first you need to make sure that the upper resistance is tested. If the resistance is not tested, it may mean that a downward trend is in the works, and you will have saved yourself the trouble of entering into a non-profitable trade. If the price action can break above this resistance, it will confirm a further rise in the price action, as fresh buying momentum will have entered the market.

As a result, you should place your entry 30 pips above the target shown as the red line , with your subsequent stop applied upon entry. Once your order is executed, the stop should be applied five pips below the previous session low. The assumption is that the low will not be tested because the price action will continue to rise and not spike downward due to the buying momentum. Although the two methods discussed here trading within the lines and trading outside the lines may seem complex, they are easily applied when you break them down step-by-step.

Cross currencies , although they do exhibit trending patterns, tend to be choppier and yield less satisfying results. Now, let's break the process down.

First we'll take the in-line approach, choosing example A in Figure An evening star formation at point X suggests an impending sell-off that is confirmed by the downward crossover in the stochastic oscillator. For breaks outside the trendlines, we take a look at the next example, point B in Figure 7.

Here, the price action has broken above the upper trendline , but looks set to retrace back to the median or middle line. Figure 9: Taking a closer look, we can see a great opportunity as the price action moves towards the median line. Andrews' Pitchfork can provide currency traders with profitable opportunities in the longer- or intermediate-term, capitalizing on preferably longer market swings, although it's worth noting that it is more often applied in the futures and equities forums than in the currency markets.

When the pitchfork is applied accurately and is used in combination with strict money management and textbook technical analysis , a trader is able to isolate great setups while weeding out the choppier price action in the forex markets.

The trade will be able to ride its way to profitability compared to its shorter-term peers, given that traders apply all of the criteria we outlined above. Technical Analysis Basic Education. Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand.

Table of Contents. Defining Andrew's Pitchfork. Applying Andrews' Pitchfork. Trading Within Pitchfork Lines. Trading Outside Pitchfork Lines.

Step-by-Step Breakdown. The Bottom Line. Technical Analysis Technical Analysis Basic Education. 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. Advertiser Disclosure ×. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear.

Investopedia does not include all offers available in the marketplace. Related Articles. Beginners Introducing the Bearish Diamond Formation. Technical Analysis Basic Education The Basics of Bollinger Bands®.

Technical Analysis Basic Education What Is a Pitchfork Indicator? How To Use Andrew's Pitchfork.

You have probably noticed that the price action within the pitchfork routinely breaks the median line and bounces from the upper and the lower level. What Is a Head and Shoulders Chart Pattern in Technical Analysis? Andrews' Pitchfork can provide currency traders with profitable opportunities in the longer- or intermediate-term, capitalizing on preferably longer market swings, although it's worth noting that it is more often applied in the futures and equities forums than in the currency markets. Have a look at the chart below:. In this example, we see a significant price drop after our confirmation signal at point 4.

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