The advantage of applying Andrew’s Pitchfork indicator in forex trading

Andrew’s Pitchfork is a technical indicator which is used to predict profitable opportunities and swing possibilities in the forex market. Named after its inventor Dr. Alan H. Andrews, this tool can be used to get an insight into the overall cycle that affects the spot activity. It is very commonly available on most programs and charting packages. It is also known as median line studies. It is quite different from the usual support and resistance lines. This indicator provides 3 lines with 2 of them acting as the support or resistance and the central line which can act as both or serve as the regression line. The indicator is based on the theory that 80% of the times the prices will move towards the central or median line while 20% of the times it will move randomly and will be prone to wild fluctuations due to market sentiment. 

 Even though fluctuations may take place due to the market sentiment the other trends will remain unaffected and the trend will only change in the event of a shift in the market sentiments or the supply and demand paradigm. These movements will of course present lucrative opportunities to traders. But like all other technical tools Andrew’s Pitchfork should also be used in conjunction with other indicators to improve the veracity of predictions or signals. 

 To begin with let’s learn to form the pitch fork. In order to do so you will need to first single out a previous high peak and a low trough on the chart. You will then need to draw a line outwards in the direction of the movement from the first trough or peak. This point can be labeled as ‘P’. Once this crucial pivot point has been demarcated next you will need to look for a peak and a trough to the right of this point. These points can be names as “Q’ and ‘R’ respectively. These points are usually corrections in the opposite direction to the first movement. Lines should be drawn out from ‘Q’ and ‘R’ as well. So the chart ends up with three lines. The line drawn from point ‘P’ serves as the median while the lines from ‘Q’ and ‘R’ serve as support and resistance respectively. 

 There are two ways to trade with the pitch fork you can either trade inside the channel created by the three lines or use it to isolate the breakouts outside the channel. The two levels can be conveniently used as support and resistance and traders can enter when the price hits the line below the median and sell when the price hits or crosses the resistance level that lies above the median. If you add a basic price oscillator to back your decision up you can certainly increase the viability of the indicators signals. 

 The trader can also use the breaks of the support and resistance levels to frame enter or exit strategy. When the market sentiment changes, the price will reflect this change by moving away from the median line and sometimes even breaking through the resistance or support levels. But the trader can be reasonably sure that the price will try to move back towards the median line and when it does so it’s a good time to make some profit from the windfall. 

 If the trader wants to trade within the lines than he should wait for the price to bounce off the median line after which it will normally rise up to meet the resistance level and one it touches this level it will retrace its path back towards the median. The point at which the price reaches the resistance level is a good point to sell while the traders can buy when the price moves downwards towards the median line. One can also place an appropriate stop loss order to enter the market when the price is moving downwards. 

 Trading outside the lines can be a little trickier as compared to trading inside the lines simply because it occurs less frequently. The principle is the same here again that the price that breaks through the resistance or support level will eventually move towards the median line. But this can never be a certainty since the break may very well be an indication of the start of a new trend so the trader needs to be careful. The use of the MACD price oscillator to reconfirm the signals being generated by Andrew’s pitch fork usually helps.