Forex and Andrews Pitchfork

4H eur/usd chart


We'll take in hand a lesser used technical indicator today and discuss how to put it on your chart, and how it is best employed.

An important thing to remember is that like all technical indicators, it is not a magic trick, nor is it infallible. But with some practice, it can be an effective tool for trading reversals.

The pitchfork as you see in the chart above is so named because it resembles a farmer's pitchfork when it is placed on a chart. It's usage is based upon the median line theory of prices. Simply stated, prices tend to return to a median when in a trend. Frequently at the median, they post a reversal. Another real possibility is that at the median, prices will begin to congest and stall. Then either breakout to the up or downside. The following article will deal mostly with downtrends. Just reverse the directives for an uptrend.

To apply an Andrews' Pitchfork, first you must have it in your charting package. It is based on a three point diagram. For a downtrending price pair, you need a swing high, followed by a swing low, followed by another swing high, either at the same price as the previous high or lower. That, of course, is the definition of an downtrend. A high point, followed by a lower low and a lower high. With the MT4 chart package, click on the insert tab in the upper bar. The dropdown menu will include an listing for Andrew's Pitchfork. Click on that and move your cursor over to your first swing high. You'll see that the cursor has become a #1 with a crosshair and 3 lines that resemble a pitchfork.

Click on that first swing high. You'll see the cursor will retain the second 2 symbols, but the 1 will change to a 2. Move your cursor to the 2nd swing high and click. Then the 2 will change to a 3. Move the cursor to the swing low in between the two swing lows and click on that. When you do, the pitchfork will automatically form.

What you will see is a median line in the middle, a lower support and upper resistance. That falling upper support line will frequently restrain prices as they prepare to fall to the median line.

On the other hand, a rising trend will find that the lower line will contain price action as it seeks to return to the median.

It is simply helpful to remember, that prices often seek to find a median. They do not like to be overstretched too far with out seeking to return.

So play around with that a little on various time frames. Like with most indicators, you'll find it more reliable on longer time frames than shorter ones. Also, when looking for a reversal at the median line, remember to exercise good money management and reasonable candle watching for weakness. If the candles do not display weakness, you may not get a reversal.

That will do it for today, tomorrow, we'll look at some more applications of the pitchfork.

Happy Trading!

Bill
http://www.thefxtradingmasters.com/