What Is Andrews' Pitchfork?
Andrews' Pitchfork is a technical indicator that uses three parallel trend lines to identify possible levels of support and resistance as well as potential breakout and breakdown levels. 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.
- 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.
Understanding Andrews' Pitchfork
This technical indicator (sometimes referred to as "median line studies"), was developed by Alan Andrews. It uses trend lines that are created by selecting three points at the start of confirmed trends, higher or lower. This is achieved by placing the points at three consecutive peaks and troughs. Once the points are in place, a straight line that denotes the “median line” is drawn from the first point through the midpoint between the upper and lower points. Upper and lower trend lines are then drawn parallel to the median line.
Andrews' Pitchfork also uses trigger lines, which are trend lines that originate from point one (median line inception price) and intersect with the other points. A lower trigger line connects points one and three, sloping upward on a rising pitchfork. An upper trigger line joins points one and two, sloping downward on a falling pitchfork. Trading signals generated by the trigger lines typically occur well after price breaks the pitchfork’s upper or lower trend line. Breakouts above the upper trigger line suggest further upside, while breakdowns below the lower trigger line predict further downside.
How to Calculate Andrews' Pitchfork
Andrews' Pitchfork can be easily applied to price charts without a specialized drawing tool.
- Point 1: starting point of uptrend or downtrend.
- Points 2 and 3: reaction high and reaction low in the uptrend or downtrend.
- Point 1 = starting point of median trend line.
- Distance between Points 2 and 3 = channel width.
- Draw and extend a trend line from Point 1 through the midpoint of Points 2 and 3.
- Draw and extend trend lines from Points 2 and 3 parallel with the median trend line.
- Change Pitchfork slope by changing Point 1.
What Does Andrews' Pitchfork Tell You?
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.
Support and Resistance (Trading Ranges)
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. Price should reach the median trend line frequently when a security is trending and, when that doesn’t happen, it may indicate an acceleration in the trend.
Breakouts and Breakdowns (Trending Markets)
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.
Limitations of Using Andrews' Pitchfork
Keep in mind that selecting the most reliable three points takes skill and experience, which is vital because the indicator’s effectiveness depends on those points. 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.