DEFINITION of 'Andrew's Pitchfork'

Andrew’s Pitchfork is a technical indicator that uses three parallel trendlines to identify possible levels of support and resistance. The indicator, developed by Alan Andrews, uses trendlines that are created by selecting three points at the end of identified trends. This is achieved by placing the points at three consecutive peaks or troughs. Once the points are in place, a straight line, referred to as the “median line,” is drawn from the first point that intersects the midpoint between the upper and lower trendlines. The upper and lower trendlines run parallel to the median line.

The chart below shows why this indicator is called a pitchfork. The first point drawn on the chart forms the handle, while the lines extending from the other two points make up the prongs:

Image depicting Andrew's Pitchfork indicator.

 

BREAKING DOWN 'Andrew's Pitchfork'

Andrew’s Pitchfork also uses trigger lines, which are trendlines that originate from point one and intersect with the other points. A lower trigger line connects point one and three and slopes upward on a rising pitchfork. An upper trigger line joins point one and two and slopes downward on a falling pitchfork. Trading signals generated from the trigger lines typically occur well after price breaks the pitchfork’s upper or lower trendline. Breakouts above the upper trigger line suggest further upside, while breakdowns below the lower trigger line indicate a move lower.

Trading Andrew’s Pitchfork

Support and Resistance: Traders could enter a long position when the price of a security reaches the bottom trendline of the indicator. Conversely, when the price hits the upper trendline, a short position might be taken. Traders could book profits when the security's price reaches the opposite side of the pitchfork. Before entering a position, traders should ensure support and resistance is holding at these levels. Price should reach the median line regularly when a security is trending; failure to do so may indicate underlying weakness and an impending reversal.

Breakouts: The Andrew’s Pitchfork can be used to trade breakouts above the upper trendline and breakdowns below the lower trendline. Traders using this strategy should be cautious of head-fake moves and use other indicators to gauge the strength of the breakout or breakdown, such as looking for increased volume to accompany the move.

Limitations of Andrew’s Pitchfork

Subjective: Selecting the three points used to create the Andrew’s Pitchfork is subjective and takes practice. The effectiveness of the indicator depends on the points selected. Traders can combat this by experimenting with different reactionary highs and lows when constructing the indicator to find the most effective price points.

(To learn more, see: Make Sharp Trades Using Andrew’s Pitchfork.)

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