Andrew’s pitchfork is one of many technical indicators used by traders. It is a quick way of identifying possible levels of support and resistance for the price of an asset.
Andrew’s pitchfork – also known as median line study – is definitely not found among the most commonly utilized indicators, and it is rarely used by novice traders.
Why is it called Andrew’s pitchfork?
- The first part of the name comes from the MIT engineer Allan H. Andrew who helped popularize the pitchfork indicator in his mail-order trading course Action-Reaction Course in the 1960s and 1970s.
- The second part of the name is because this indicator uses three parallel trend lines to identify possible levels of support and resistance, and it looks like a pitchforks on the chart.
Drawing Andrew’s pitchfork
As mentioned above, Andrew’s pitchfork uses three parallel trend lines to identify possible levels of support and resistance. You create them by making three points at the end of identified trends on your chart, typically placing the points in three consecutive peaks or throughs. Once they are in place, you draw a straight line from the first point (point A) and make it intersect the midpoint of the other two points (point B and point C). Then you add parallel lines extending to the left from both point B and point C. You now have three parallel lines on your chart, forming a pitchfork. The line going from point A is the handle of the pitchfork, while the lines from point B and point C are the two prongs of the pitchfork. What you have is three parallel lines that define a clear trend channel. The lines going from point B and point C stem from equidistant reaction highs and lows following point A, and thus represent levels of resistance and support, respectively.
Andrew’s pitchfork can be helpful when you want to notice good opportunities for swing trading, but since you are the one who selects the points, it is only as good as you are. Some traders develop an uncanny ability to pick the right points, and for them, Andrew’s pitchfork can be highly valuable.
If you find yourself with a very steep pitchfork, please keep in mind that a trend channel that is very steep carries more risk of being broken. Hence, point A may need to be adjusted to create a pitchfork that is less steep.
The ability of the price to consistently reach the median line (the pitchfork’s handle) is an indicator of trend strength. If the price consistently reach or exceed the median before rebounding toward the support (the pitchfork’s bottom prong), this is indicative of being in an uptrend. If the price consistently goes down to the median or below the median before rising towards the resistance level (the pitchfork’s upper prong), this is a sign of being in a downwards trend.
If the price seems to be losing its ability to reach the median line, this can be a warning signal of a reversal being about to take place.
When Allan H. Andrew promoted the use of median line study, he claimed that the price of a stock will stay within the channel of the two pitchfork prongs 80% of the time, with only 20% of the time being characterized by breakouts above the top prong or below the bottom prong. The way he saw it, the pitchfork could therefore be used to predict (with a pretty high accuracy) the likelihood of a correction back towards the median.
Using Andrew’s pitchfork
Traders using Andrew’s pitchfork are likely to buy when the price drops down to a spot that is near the support of either the center trend line or the lowest trend line. Using the same method, they will sell when the price comes near the resistance of the center trend line or the resistance of the highest trend line.
The levels identified by Andrew’s pitchfork are often used to decide where to put stop-loss orders.
It is advisable to use other indicators to confirm a reversal before acting upon it, instead of relying solely on Andrew’s pitchfork. It is not unusual for a price to first be near the resistance of the center line and then break trough and soar higher.
Andrews’ Pitchfork [ChartSchool]: StockCharts.com : English : Fetched 2015-12-26
Andrews’ Pitchfork [Lär dig tjäna pengar]: snabba-pengar.nu: Swedish : Fetched 2016-12-26
Make Sharp Trades Using Andrew’s Pitchfork: Investopedia : English : Fetched 2016-01-11