
Andrews’ Pitchfork may be considered an excellent technical indicator and one of the trading tools most overlooked by retail investors. Investors either don’t understand how to use it or don’t know the important role it plays in forecasting future prices.
The name comes from Dr. Andrews, who put the “final touch” on a trading concept first developed by Babson and continued by Marechall in the early to mid-1900s.
The MT4 platform offers it as a technical tool because it is not considered a trend indicator or an oscillator.
Andrew’s Pitchfork elements
The Pitchfork has three elements derived from three pivot points:
- ML – Median Line
- UML – Upper Median Line
- LML – Lower Median Line
When selecting the Andrews’ Pitchfork, investors need to decide where to place the pivot points. Effectively, they need to click three times on the chart, each click representing a different pivot point: P0, P1, and P2.
From these points, Andrews’ Pitchfork projects three equidistant parallel lines. Of the three lines, the one in the middle, the Median Line, is the most important. Its main feature is that it attracts the price, so it acts as a target for possible future trades.
How to place the pivots and use Andrews’ Pitchfork
By now it is evident that one of the most important decision is where to place the three pivot points that form Andrews’ Pitchfork. A random placement of the three pivot points results in various angles for the Pitchfork, and not all of them are relevant.
Therefore, for correct placement, investors use the rules of a trend and other technical patterns that form on the chart. Namely, they use the series of lower highs and lower lows in a bearish trend, or higher highs and higher lows in a rising trend.
The chart above shows the USD/JPY forming a double top on the left side. Therefore, the general assumption is that the market will form a bearish trend, and, it did. The confirmation came from the series of lower highs that ended with a bearish triangle. As the triangle broke lower, the question becomes: where should the target be? Andrews’ Pitchfork provides the target: the Median Line. The chart below shows how the price was clearly attracted to the Median Line and how it bounced after that. If investors need a target after the triangle breaks lower, the Andrews Pitchfork offers precisely that.
Take-aways:
- Andrews’ Pitchfork trading tool is derived from three pivot points.
- The Median Line’s main characteristic is that it attracts the price action.
- Investors use the rules of a trend to project Andrew’s Pitchfork.
- Andrews’ Pitchfork is a great tool to use when defining targets.