Trading Andrew’s Pitchfork
What is Andrew’s Pitchfork
Andrew’s pitchfork is a popular indicator that is used for analyzing trading trends as well as identifying trend breakouts. Andrew’s pitchfork has been developed by Alan Andrews and as the name suggests, resembles a pitchfork. The indicator is composed of three parallel trend lines which are used to analyze the behavior of a trend. The trend lines are created by selecting three points placed at three consecutive peaks and valleys at the start of confirmed trends. Once the points are placed, a straight line denoting the median line is drawn from the first point through the midpoint between the upper and lower points. Upper and lower trend lines are then drawn automatically parallel to the median line.
Below you can see Andrew’s Pitchfork drawn on a Fondex cTrader chart.
Calculating Andrew’s Pitchfork
In contrast to other cTrader indicators, Andrew’s pitchfork needs to be drawn manually on the chart. The steps to properly apply the indicator on the chart are the following
Pick the starting point of the trend. It is a low point for an upward trend and a high point for a downtrend.
Points 2 and 3: In the case of an upward trend, pick the first higher high and for the second point - the higher low. In the case of a downward trend, pick the first lower low and for the second point - the lower high.
The pitchfork now forms three lines.The median trend line, which starts from point 1 and the channel lines which start from points 2 and 3. The area between 2 and 3 denotes the trend channel in which the price moves.
The trend line created by Andrew’s Pitchfork outlines the trend channel. The lower line is usually considered as the support level for the trend and the higher line is considered the resistance level. A trend usually develops by respecting these support and resistance lines, hence this information helps traders make speculations and execute trading decisions. There are two popular ways to use this information in your trading. These are by a) trading the trend and b) by trading the break outs. We will describe in detail these two popular trading strategies below.
Andrew’s Pitchfork in cTrader
You can find Andrew’s Pitchfork in cTrader’s Line Studies tool.
The indicator is a manually drawn tool, hence you need to click on the button and draw the pitchfork yourself on the chart. You need to click on the chart to add the pitchfork, identify the three points on the chart and draw them so that the pitchfork is drawn in the right places. See below the indicator drawn on a Fondex cTrader chart.
Trading the Trend
Andrew’s Pitchfork is an ideal tool used to identify entry and exit points on an ongoing trend. One of the key strategies of using Andrew’s Pitchfork is to trade retracements to the support and resistance lines, forming the channel. Let’ see an example below
In the chart above, we can see Andrew's Pitchfork drawn on a downward trend formed on the NZDCAD pair. In this case, a trading strategy is to enter positions when the price reaches the resistance level, expecting a reversal to the median line. The red arrows, drawn on the chart, indicate where we would enter a sell order (where the price touches the resistance level) and the green arrows (where the price crosses the mean) indicate where those positions would be closed. As per the chart, we can observe that we would have entered three consecutive successful sell trades.
Trading the Breakouts
Another way of trading Andrew's Pitchfork is by identifying trend breakouts and trading price reversals. The logic behind the strategy is simple. A breakout is considered a bar that closes below the support level for a bullish trend and above the resistance level for a bearish trend. In the chart below, we can see the continuation of the previous chart and we can identify a breakout of the resistance line, which suggests that the bearish trend might be over and that it might be a good time to enter a buy position. The subsequent price action confirms this as the price starts moving upwards.
Limitations of Andrew’s Pitchfork
Andrew’s Pitchfork, as any other technical indicator, always needs to be used in context. An out of context interpretation of Andrew's Pitchfork patterns can generate a lot of false signals that could lead to substantial losses. Therefore, when using Andrew’s Pitchfork indicator, always consider the market fundamentals that currently move the market and combine the signals with other confirmation signals, such as trend indicators, support/resistance levels and the relevant price action taking place on the chart.
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