Andrews Pitchfork

Andrews Pitchfork is a technical analysis indicator developed by Dr. Alan Andrews in the 1960s. It has become a widely used tool among traders and technical analysts.

The indicator consists of three parallel trendlines drawn on a price chart. The middle trendline connects two extreme points, usually a peak and a trough. The upper and lower trendlines run parallel on either side.

Traders use the Pitchfork indicator to identify potential areas of support and resistance. The area between the upper and lower trendlines often acts as support and resistance zones. The middle trendline can also mark potential turning points.

In the sections that follow, we will explore how to use Andrews Pitchfork and some trading strategies that utilize this indicator. But first, it’s important to understand the basic premise behind this popular technical analysis tool.

How to Use Andrews Pitchfork

Using Andrews Pitchfork requires first identifying three extreme pivot points on a chart that will serve as the anchor points. These are usually major swings in the market. The more significant the turning points, the more relevant the pitchfork will be for future price action.

Here are the detailed steps on how to draw andrews pitchfork on charts:

• Identify a major peak or trough in the price action and mark it on the chart. This swing should reflect a significant price level where the candlesticks ‘stand out’. Mark this point as point A.

• Now identify two other major swings, one being a peak and the other a trough. Mark these points B and C.

• Next, start the pitchfork draw from A, connecting to B, then C. Try to be as precise as possible, using the ‘magnet’ tool if available on the chart to connect the points exactly to the swings.

Andrews pitchfork will create projected support and resistance levels. The upper trendline marks potential future resistance levels, and the lower trendline marks potential future support. The middle trendline marks potential reversals.

Here is a zoomed-out version of what we just drew of the Bitcoin chart:

Now that you know how to construct Andrews Pitchfork properly on a chart, let’s examine how traders use it in their market analysis and trading.

Andrews Pitchfork Trading Strategies

There are several ways traders can utilize the Andrews Pitchfork to aid trading decisions and identify potential opportunities. Here are some common trading strategies using the pitchfork:

Buy near lower trendline, sell near upper trendline

The most straightforward way to trade the Andrews Pitchfork is to look for long entries near the lower trendline support and take profit near the upper trendline resistance.

This method involves waiting for the price to pullback and test the lower trendline support. As the price approaches the support, prepare to buy if the price bounces off the lower trendline. Place a stop-loss order just below the lower trendline – this defines the risk on the trade.

Upon buying near the lower trendline support, the upside profit target is the upper trendline resistance area. As the price advances up towards the upper trendline, begin trailing stops to lock in profits. Look to partially close the position each time the price reaches and interacts with the upper trendline.

Several tactics can be used for trailing stops and profit-taking:

• Move stops up to just below each minor swing low to lock in gains
• Trail stops under rising moving averages
• Partial close a percentage of each touch of the upper trendline
• Scale out completely if the price breaks and closes decisively above the upper trendline.

The key with this long strategy is buying the pullbacks to validated support along the lower pitchfork trendline. Only buying after confirmation of support prevents premature entries. Proper stop placement and profit targeting allow for maximizing the upside.

Short selling can be done similarly by looking for rallies into the upper trendline to fade and take profits near the lower trendline. This pitchfork trading method takes advantage of reversions between support and resistance.

Fade the endpoints

The “fade the endpoints” pitchfork technique involves looking to enter counter-trend trades at the ends of the trendlines.

As the price reaches the upper trendline resistance, this strategy will look to short-sell and fade the resistance level. The upper trendline rejection provides the entry signal for the short trade.

The stop loss on the short trade is placed just above the upper trendline, allowing some wiggle room for potential false breaks. The profit target is then down near the lower support trendline. Plan to cover the short position on a pullback that tests the lower trendline support.

For long trades, the opposite approach is taken. As the price pulls back to the lower support trendline, this strategy looks to buy and fade the lower support. The stop loss is placed beneath the lower trendline, and target profits are up near the upper trendline resistance.

What makes this strategy profitable is the tendency for price to revert back inside the pitchfork channel after reaching the endpoint extremes. The upper and lower trendlines act as barriers that contain the price action.

To avoid being stopped out prematurely, skilled pitchfork traders will wait for confirmation of a reversal at the endpoints. For example, on upside resistance, they may wait for bearish price action patterns or diverging indicators.

By fading the endpoints and taking contrarian entries, pitchfork traders aim to capture price swings in both directions as the price oscillates between support and resistance.

Trade the midpoint

The middle trendline or median line of the Andrews Pitchfork often acts as an important midpoint level in the trend. Traders will look for reversals and potential swing entries as the price interacts with the median line.

For trading bullish reversals, traders will watch for the price to pullback to the median line support. If the median line holds as support and the price bounces off it, traders can enter long positions on the rebound. Stops are placed below the median line support.

Conversely, if the price breaks down below the median line, traders will look to initiate short trades under the median, with stops above it. The median line serves as the demarcation for the directional bias.

In essence, the midpoint acts as a mini support/resistance level within the broader pitchfork structure. Bounces off the median line indicate bullish continuation. Breaks below it signal bearish reversals.

The key is waiting for confirmation of rejection or support at the median line before entering trades. Confirmation comes in the forms of bullish/bearish candlestick patterns, momentum divergences, or overbought/oversold indicators.

Trendline breaks

One of the most important signals with the Andrews Pitchfork are breaks of the upper and lower trendlines. These trendline breaks indicate shifts in the prior trending bias.

For example, during an uptrend, watch for the price to approach the lower support trendline. If the price then breaks decisively below the lower trendline support, it signals the support has failed, and the uptrend may be ending.

This lower trendline breakout often leads to further selling as long positions are forced to liquidate. The break indicates bears have taken control and sellers have overwhelmed buying pressure.

The opposite effect happens when the price breaks out above the upper resistance trendline. This shows bullish momentum is surging, and upside resistance has failed. The breakout leads to short covering as shorts are forced to exit positions. New longs are also initiated as momentum accelerates higher.

These pitchfork trendline breaks should be traded in the direction of the breaks. Long liquidations on support breaks and short covering on resistance breaks. Stop losses are placed on the other side of the broken trendline.

Often these broken trendlines will act as subsequent resistance or support once the pullback begins. This allows for secondary entry opportunities in the direction of the trendline break. Trading the trendline breakouts can capture the largest impulsive moves as price breaks out into new trends.

Throwbacks/backtests

After the price breaks out above or below one of the Andrews Pitchfork trendlines, it will often throwback or backtest the broken trendline level.

For example, if price breaks out above a prior upper resistance trendline, it will sometimes pullback to retest that broken resistance zone. This throwback offers additional confirmation that the resistance is broken and provides another opportunity to join the emerging uptrend.

Traders can watch for these throwback setups to get better priced entries in the direction of the trendline break. As price pulls back to the resistance-turned-support area, bullish reversal signals or patterns can trigger new long entries. Stops are placed below the broken trendline.

The same applies for downside support breaks. When support gives way, the subsequent rally back up to that support-turned-resistance zone creates a shorting opportunity. The backtest setup allows entering shorts at better levels with reduced risk.

Pitchfork traders anticipate these throwbacks and backtests following trendline penetrations. Planning ahead for pullback scenarios can lead to high-probability entries. Often the best reward/risk trades emerge from these secondary pullback opportunities after trendline breaks.

By combining trendline breaks with measured pullbacks, pitchfork traders gain strategic entry points into newly established trends. Trading the throwbacks and backtests smooths out entries compared to chasing initial breakouts.

Advanced Pitchfork Strategies

The Andrews Pitchfork offers traders a variety of advanced strategies beyond just trading between the trendlines. Here are some additional methods:

Price Failure Rule

This strategy observes what happens when price fails to reach the median line or one of the outer trendlines. If price shows rejection near a trendline, it can signal potential reversal or trend continuation.

For example, if price rallies up to the median line but then drops away sharply, it indicates buyers were rejected, and the uptrend may be over. This failure near the median line can flag a potential reversal opportunity.

Mini-Median Line Method

This approach involves drawing additional smaller pitchforks with their own median lines contained within the larger primary pitchfork. The mini median lines often provide more granular details on potential support, resistance, and reversals.

Traders can identify trade opportunities using these smaller counter-trendlines when price approaches the mini median lines. The primary pitchfork gives the overall trend while the mini pitchfork captures shorter term moves.

Flat Price Action Method

Periods of horizontal price consolidation near the median line can indicate directional changes ahead. If price oscillates near the median without a clear trend, a breakout from the range could develop.

Traders watch for these flat periods along the median line and prepare to buy a breakout above range resistance or sell a breakdown below range support.

Divergence Trading

Divergences between the pitchfork and indicators like RSI can also produce trades. For example, if price makes higher highs on the chart but RSI is making lower highs, it shows negative divergence signaling a trend reversal.

These divergences at key pitchfork levels highlight high probability reversal points. Divergence signals near the upper or lower trendlines can be especially powerful trade entries.

Using Stop Losses with Andrews Pitchfork

When using the Andrews Pitchfork for trading opportunities, it’s important to use strategic stop loss placement to manage risk. Here are some tips for using stop losses:

• Place stops below key support/resistance – When buying near lower trendline support, place stop loss just below that support line. When short selling at upper trendline resistance, place stop above the trendline. This contains risk to the other side of key levels.
• Use channel stops – Another option is to place stops just outside the upper or lower boundary of the pitchfork channel. For longs, place stop below pitchfork channel support. For shorts, use a stop above channel resistance.
• Consider volatility – Adjust stop distance from trendlines based on volatility and average true range. In volatile markets, use wider stops to avoid premature stopouts. In low volatility conditions, can use tighter stops.
• Trail stops – As the trade becomes profitable, trail the stop upwards to lock in gains. For longs, trail under structure of rising lows. For shorts, trail stop over structure of falling highs. This follows the trend.
• Move stops to breakeven – If a trade reaches a 1:1 or 2:1 reward/risk ratio, look to adjust stop to entry price to reduce risk exposure. This gets the trade to breakeven as quickly as possible.
• Use options for defined risk – Buying options spreads or calls/puts outright gives defined downside risk. Can be used in conjunction with pitchfork setups.

Always use stops at a logical area that invalidates the reason for entry. Stops should reflect a small acceptable loss on a trade. Proper stop loss placement is key for managing risk with the Andrews Pitchfork or any trading strategy.

Ending Off

To trade effectively with the Andrews Pitchfork, develop a structured plan using the guidelines covered. Identify high-probability setups at key levels, confirm signals with price action, determine logical stop loss points, target defined profit objectives, and manage risk on every trade. Don’t rely solely on the pitchfork – let it complement your analysis. Use confirmation signals like candlestick patterns, momentum oscillators or volume to time entries and exits. Implement good risk/reward ratios with stops and profit targets. Execute with confidence once a setup aligns with your strategy. Stay nimble, adjusting to what the price action reveals in real time. With practice, the pitchfork can become a valuable addition to a well-rounded trading approach. But consistently profitable trading requires following a defined, disciplined process. Use the pitchfork to plan high-probability trades, but adhere to smart risk management to navigate the twists and turns of the markets.