Andrew's pitchfork is a technical indicator made up of three linear line graphs (the median line, the upper trendline, and the lower trendline). Alan Andrews invented it, and the pitchfork is drawn utilizing either the low-high-low or the high-low-high method. This indicator is used to locate potential supports and resistances, as well as breakout levels.
Three trendlines are drawn by selecting three points (uptrend or downtrend start points). The median line is drawn from point "A," and the minimum and maximum trendlines are drawn parallel to the first line from points "C" and "B." Pitchfork by Andrews is primarily a tool for drawing price paths. It aids in the identification of medium- and long-term trends and channels, support and resistance levels, breakout and breakdown levels, and so on.
It aids in the identification of intermediate and long-term trends and channels, support and resistance stages, breakout and breakdown stages, entries into established patterns, and market reversals. Andrews' Pitchfork works well in strong uptrends and downtrends but is less effective in sideways trading markets. However, some of Andrews' Pitchfork variations are better suited for sideways-moving price levels.
The appearance and construction of Andrews’ pitchfork
Andrews' Pitchfork is made up of three parallel lines, with the upper and lower lines equidistant from the middle. The middle line is greater in length than the top and bottom lines. A line is usually drawn between the beginning points of the upper and lower lines, but it is not strictly necessary and is occasionally omitted. The indicator is designed to resemble a farmer's pitchfork, which is why it has that name.
To create the indicator, first distinguish three major highs and lows (pivot points). Then, draw a line through all the points exactly in the center of the second and third pivot points. After that, draw a parallel line beginning at the second pivot point and another parallel to the middle one beginning at the third point. As a result, you have the three "prongs" of the pitchfork. In the case of an uptrend, the pitchfork is built from a low to a high and then another low, in that order. In the case of a downtrend, the pitchfork is built from a high to a low to another high, in that order.
Andrews’ Pitchfork Parts: How They Are Labeled and What They Imply
Andrew's Pitchfork has several parts, and traders must understand them all to use the indicator.
1. The pivot points, also known as turning points, pivot points, or simply pivots, are the key highs, peaks, and lows. It is critical to correctly identify pivot points because they describe the resulting look of the pitchfork. You may need to tweak your pivots slightly to effectively capture the center of a channel.
2. Median line: The center line is referred to as the median line. According to Andrews, prices tend to move in this direction 80% of the time. Costs are likely to either alter their movement or gape through the median line once they reach the line. Traders frequently regard the median line as a support/resistance level within the overall trend, which is relatively weaker than the support and resistance levels indicated by the upper and lower lines, but still significant. However, some experts argue that in a strong trend and within a properly constructed pitchfork, price levels should be progressing around the median line, shifting back and forth above and below the line without issue.
In any case, it is widely accepted that if prices closely follow the median line, it indicates that the trend is strong and effective. However, it is also a widely held belief that in a particularly strong uptrend, prices will keep moving largely above the median line, while in a particularly strong downtrend, prices will move largely below the median line.
3. Midpoint: The central point, or midpoint, is the point located halfway between the second and third pivot points, whereby the median line is drawn.
4. Handle: The portion of the median line between the first pivot point and the middle point is referred to as the handle.
5. Parallel lines: There are numerous names for the two parallel, equidistant lines that lie below and above the median line. Support and resistance lines, higher and lower trend lines, parallel or channel lines, an upper and lower median line, and an upper and lower median line are among them. The parallel lines are widely regarded as the most important aspect of Andrews' pitchfork. According to one common interpretation of the lines, the upper line needs to provide significant resistance, and the lower line should provide solid support, at least if the pitchfork is present.
The lines are commonly interpreted as providing strong resistance to the upper line and strong support to the lower line the pitchfork is properly constructed. In Its common practice to put it on hold and wait for prices to move at least once from one of the lines before confirming the pitchfork. In the case of an upward breakout, the former resistance level becomes support, while in the case of a downside breakout, the former support level would become resistant.
While the median line and the upper and lower parallel lines are the primary parts of Andrews' Pitchfork and are always present, traders may draw additional parallel lines to the median line, known as "warning lines."
6. Quartile lines: This is one kind of such line that is drawn inside the pitchfork. Such lines are drawn in the middle of the median line, with parallel lines on both sides of the median line. Quartile lines are used to identify a shorter-term trend within a larger-term trend and are regarded as weak support and resistance levels.
7. Warning lines: They are frequently used to detect a breakout. They are drawn outside of the pitchfork, and such lines are drawn at half the length between both the middle line and the linear line (basically a quartile line reflected the opposite side of a parallel line) or at the width of the median line and the linear line. Warning lines also act as both support and resistance in the event of a breakout, and the price is expected to fully recover inside the pitchfork from a warning line. If this is the case, it suggests a false breakout. However, if the price moves above a warning line, it will change its role, which means previous support will become resistance and previous resistance will become support. If the price effectively analyses the latest support or resistance level by moving much beyond the previous peak or trough, the previous trend has ended, and it is time to identify a new trend.
8. The latter term (upper and lower median lines) is frequently used, but some experts argue that it is incorrect. A "median" is defined as being located in the middle of two points, values, etc. That is certainly true for the center line, which is located halfway between both pivot points and the two parallel lines, but that is not true for the upper and lower parallel lines.
Conclusion:
Andrews' Pitchfork is most effective in long- and medium-term trading because it identifies broad trends. However, this does not stop several traders from employing it in shorter-term trading, such as day trading. On smaller timescales, the pitchfork is often used to accomplish this. Andrews' Pitchfork is thought to be more useful in the foreign exchange market with popular major currencies due to their popularity.
Pingback: Elliot wave analysis in forex