The following is a Market Analyst chart of the Dow Jones futures contract.
If we examine the two upward-sloping pitchforks, each has a pivot point low labelled â€˜Aâ€™, a pivot point high, labelled â€˜Bâ€™, and higher low point (than â€˜Aâ€™) labelled â€˜Câ€™. To construct an Andrews Pitchfork, we do the following:
- Find the mid point of Line B-C.
- Draw a straight line from point â€˜Aâ€™ to the mid point of Line B-C.
- Draw lines from Point B and from Point C parallel to the median line that runs from Point A through the mid-point of Line B-C.
- Draw additional lines parallel to these at equal spacing (as has been done here) or from pivot points.
Remember: The computer was given the points â€˜Aâ€™, â€˜Bâ€™ and â€˜Câ€™. It did not know what market action to expect after Point C was in place. Despite this, the pitchfork lines gave an excellent indication of the market action in advance, according to Dr. Andrewsâ€™ rules.
Use of the Andrews Pitchfork
In essence, there are two uses of the Andrewâ€™s Pitchfork. The pitchfork can be used to forecast market turning points, and it can be used as a channelling tool for support and resistance purposes.
Dr. Alan Andrews states in his course that there is a high probability that:
- Prices will reach the latest ML [Median Line];
- Prices will either reverse on meeting the ML or gap through it;
- When prices pass through the ML they will pull back to it;
- When prices reverse before reaching the ML, leaving a â€˜spaceâ€™, they will move more in the opposite direction than when prices were rising toward the ML.
- Prices reverse at any ML or extension of a prior ML.
(Andrews, A. H., Action-Reaction Course.)
In a sense, the Andrewâ€™s Pitchfork appears to put the market on train tracks. This gives the trader an excellent indication of where the market is likely to be heading, and an indication of its strength.
Members of the Society of Technical Analysts of New Zealand (STANZ) may recall me discussing the market action of the All Ordinaries Index on an Andrewâ€™s Pitchfork at a presentation I gave in October 2000. When I returned to address STANZ members again in August 2001, the market was still holding the same pitchfork lines some 10 months later!
There are many excellent technical analysis and trading tools that one can use. The Andrews Pitchfork is one of the best-kept secrets. Many people give it a cursory glance and dismiss it as being too simplistic. Sadly, by not giving it a thorough trial, they fail to realise just how well the market respects the pitchfork lines, and how valuable this can be in trading.
[This article was reprinted with permission from the Australian Technical Analysts Association Journal, July/August, 2002.]
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