A:

The technical indicator known as Andrew's Pitchfork is not that well-known, and it's rarely used by novice traders. However, it is a quick and easy way for traders to identify possible levels of support and resistance for an asset's price. 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 mid-point of the other two points. The reason this indicator is called a "pitchfork" becomes apparent from the shape that is created in the chart.

FAQPitchfork.gif

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.

(To learn more about the various indicators used in technical analysis, see the tutorial Introduction To Technical Analysis.)

RELATED FAQS
  1. How should a risk-averse investor build a retirement portfolio?

    Learn about a strategy to take advantage of a higher high failure on a chart, as well as the basics of trend trading and ... Read Answer >>
  2. How do I start using technical analysis?

    Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. ... Read Answer >>
  3. What is a common strategy traders implement when using the Moving Average (MA)?

    Learn about a basic moving average strategy predicated on the relationship between a security's price action and its moving ... Read Answer >>
  4. What are the main strategies traders execute when using ascending channels?

    Utilize ascending channel patterns to determine good trade entry points for following an uptrend or for swing trading as ... Read Answer >>
  5. What are the most common market indicators experienced traders follow?

    Take a look at some of the most popular market indicators used by technical analysts, including the advance/decline line ... Read Answer >>
  6. How do traders and technical analysts interpret the Average True Ranges (ATR)?

    Learn about average true range, a volatility indicator used by technical analysts to pinpoint changing trends and bullish ... Read Answer >>
Related Articles
  1. Trading

    Make Sharp Trades Using Andrew's Pitchfork

    This technical indicator is underused in the currency markets, but it can help you isolate profitable opportunities.
  2. Trading

    Support And Resistance Basics

    Understanding the concept of Support and Resistance in trading can drastically improve your short-term investing strategy.
  3. Investing

    Support And Resistance Reversals

    Discover how these influential levels can switch roles.
  4. Investing

    The Psychology Of Support And Resistance Zones

    Emotion drives the market more than you might realize. Find out how psychology affects support and resistance zones.
  5. Trading

    Trade Broken Trendlines Without Going Broke

    Learn a stop-loss strategy that will help you protect your gains when trading breaks.
  6. Trading

    Stocks to Buy Along Trendline Support (ABBV, MXL)

    These stocks are near or approaching trendline support, which is often a favorable time to buy.
  7. Trading

    Trending Stocks Still Giving Buy Signals (XRS, TSM)

    These upward trending stocks are near entry points right now.
  8. Trading

    These Stocks are Trending Higher (CNI, MU, SIX)

    These stocks are in uptrends and trading near trendline support, offering a potential buying opportunity.(CNI, MU, SIX)
  9. Trading

    These Stocks Poised For Upside After a Pullback

    Amidst an uptrend, these stocks are flashing buy signals following a recent pullback.
RELATED TERMS
  1. Andrew's Pitchfork

    A technical indicator that uses three parallel trendlines to ...
  2. Speed Resistance Lines

    A tool in technical analysis that is used for determining potential ...
  3. Trendline

    A line that is drawn over pivot highs or under pivot lows to ...
  4. Breakout Trader

    A type of trader who uses technical analysis to find potential ...
  5. Cost Center

    A department within an organization that does not directly add ...
  6. Tirone Levels

    A series of three sequentially higher horizontal lines used to ...
Hot Definitions
  1. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  2. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  3. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  4. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  5. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  6. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
Trading Center