In forex education, you can learn about a few indicators who considered extremely important and useful because they offer a great number of advantages to traders. One of these indicators is Andrew's Pitchfork. Personally, I think that is better to speak for a tool and not for an indicator. With this article of forex education, will try to describe all the details every forex trader needs to know in order to use this excellent tool successfully in his daily occupation in the forex market.
Andrew's Pitchfork is an indicator of forex technical analysis who used not only to design trend channels but also to identify possible areas where there are opportunities for trade.
This tool was originally known as median lines, but later it became known as Andrew's Pitchfork as developed by Dr. Alan Andrews.
The pivot points are the end points where the price turns in the opposite direction. Also referred to as the reaction highs / lows or swing highs / lows. Anyone can locate these points using the Fractal indicator with parameter 7. In order to draw Andrew's Pitchfork required three parallel trendlines.
At this point, a little before examine deeply at Andrew's Pitchfork, I think is better to mention a few concepts of forex education that will help us later to understand more easily all the possibilities of Andrew's Pitchfork.
So, remember that according to forex education, we plot a trend line above the price, uniting the swing highs in a declining trend or below the price, uniting the swing lows in an uptrend. It can also be designed more or less in a sideway market. Trendlines are used primarily to present the main direction of the price, or to identify support and resistance areas. In order to draw a trendline, we must connect at least 2 or 3 pivot points.
It is important to say about the supports areas, that are those levels at which, the price is weak to retreat further. Actually, while the price decrease, there is a higher demand from buyers because the asset value is cheaper. Also, the sales offers by the sellers decrease because there are no many traders who wish to sell at low prices.
In summary, that is the level where demand exceeds supply by preventing the price from falling further. Therefore, this level of support often called as "bottom". For resistance areas, we apply just the opposite.
We should never consider the support and resistance areas as specific price levels. Always must consider them as price areas. The traders are interested about these areas because provide them with the opportunity to take investment decisions. So having in mind all the above concepts as defined in forex education will be easier to understand the function and how to use Andrew's Pitchfork.
After the above we can recognize for Andrew 's Pitchfork the following:
Andrew's Pitchfork is a forex technical analysis tool, who help us to design a channel in order to capture the range between the support and resistance levels. The price moves within this channel and is very likely that it will continue to move.
Andrew's Pitchfork consists from 3 trend lines. One of these is the Median Line (ML), which is located in the center, and two (2) external trend lines, the Upper Median Line (UML) and the Lower Median Line (LML), which serve as support and resistance levels.
The use of Median Line (ML) is based on the theory that the price tends to move around the Median Line (ML) about 80%.
The channel created by the ML will reflect the trend until the price to break out the channel because of an essential and significant change in market direction, and eventually, the result will be to form a new trend.
Observing Andrew's Pitchfork, we can see that the price has the desire to move back to the ML as it continues to remain within the channel.
In a bull market, the price does not break upwards the Upper Median Line (UML), but does not disrupt and does not break downwards the Lower Median Line (LML), until finally to become one disruption and start to form a new trend. Once occur a new trend is possible to form a new Andrew's Pitchfork.
How to design Andrew's Pitchfork
According to forex education, in order to design correctly Andrew's Pitchfork in the chart, we must recognize and choose three main pivot points.
In an upward trend:
-The Point A: pivot low or swing low who has been formed previously.
-The Point B: pivot high or swing high on the right side of point A.
-The Point C: pivot low or swing low on the right side of point B.
In a downward trend:
-The Point A: pivot high or swing high who has been formed previously.
-The Point B: pivot low or swing low on the right side of point A.
-The Point C: pivot high or swing high on the right side of point B.
The forex education mentions that on Andrew's Pitchfork which will be designed, we will observe that the Median Line (ML) cross at the middle point between the distance of points B and C. The position of point A, determines the slope of Andrew's Pitchfork.
We have to know that a steep slope, but also a very neutral slope (almost flat), you may not be reliable enough to recognize a trend.
In the representation of Andrew's Pitchfork in the chart, there is always a degree of subjectivity. The best way to check whether is placed properly is a confirmation by the price action itself. If the price is tested Andrew's Pitchfork lines, then we have design correctly.
As mentioned, the supports and the resistances are areas rather than specific levels. Therefore, the price does not need to be exactly turned over to the lines of Andrew's Pitchfork.
Therefore, along lines, we can form parallel lines into or out of the channel. This is a technique capable of making Andrew's Pitchfork visualize in a better way the price movement within the channels.
The Use of Andrews Pitchfork
The forex education says there are many ways to use Andrew's Pitchfork.
The channels who are created can help traders to identify the best areas to open a long (buy) position near to bottoms and to open a short (sell) position near to tops.
The most usual way is to buy when the price reaches the Lower Median Line (LML) and to sell when the price reaches the Upper Median Line (UML).
So we have the capability not only to recognize the trend but to place orders in the market, of course, we can open trading orders to the opposite direction of the trend or even to benefit from sideways price movements.
Observing the chart, we see that the price accepts an attraction from the ML. This by itself constitutes a perfect target to close our trading order. In a rising Andrew's Pitchfork, we open a buy order, which is in line with the trend, the ML may be our first target, and the UML can be our second target. In a rising Andrew's Pitchfork, if we placed a sell order, the ML will be our best trading target.
As with any tool or trading technique, such as with Andrew's Pitchfork, it can not be used alone as a method for trading. The best is to use with other indicators or trading techniques in order to confirm a trading signal.
How to Recognize Tops and Bottoms
Forex education helps in one of the most common challenges that we need to face when we are doing trade with Andrew's Pitchfork, and this is none other than how we can be sure, that we have on the chart a bottom formation so we can buy, or that we have a top formation and we can sell.
The most simple is to wait for a confirmation, using additional techniques, such as candlesticks pattern, and other indicators such as the Stochastic Oscillator, the MACD, and others.
Breakout Entries
To be sure of this, we must wait if the price returns within the limits of the Andrews Pitchfork.
It is unusual for the price to move in a range from the Andrews Pitchfork. If this happens, wait for the price to break this range before place a trading order.
Recognizing the reverse
The Andrews Pitchfork offers to forex traders a channel to be able to identify support and resistance areas of the price.
The power of Andrews Pitchfork depends from the ability of ML to practice attraction on the price. Finally, the channel loses his power and the ML can not longer attract the price.
All this is a first indication that the price can make a reversal and ultimately to move in the opposite direction.
Trigger Lines (Hagopian Lines)
Because of this, needed attention when traders place orders.
For this reason, we use the Trigger Lines. Indeed, when the price breaks the Andrews Pitchfork and moves out of it, we have to place the trigger lines, and so we have an additional opportunity to open a trading order.
The trigger lines are trend lines who formed from point A to point C of a current Andrews Pitchfork.
Mini – Median Line
For example, can be applied when the price is on ML or on the parallel lines. We can design as an Andrews Pitchfork, but closing prices are used as pivot points instead of the corresponding extreme high and low. The Mini - Median Lines can be used in small swing price movements.
When we use the Mini - Median Lines can give us the capability to locate very early many opportunities of the market. Generally, the maximum between pivot point B1 and pivot point C1 is from 2 to 4 days, also, pivot point A1 can be behind than pivot point B1 from one to several days (A1, B1, C1 are pivot points of Andrew's Pitchfork).
Schiff Median Lines
The Schiff Median Lines can also be used when the normal Median Lines have an extraordinary slope. The process for designing the Schiff Median Lines is the same for a normal Andrew's Pitchfork except that the starting point is in the middle, between A and B. It should be noted that in this case the Schiff Median Lines can describe better the price movement.
Price Failures
The forex education also indicates the case that, when the price fails to reach the ML. In this case, there is a possibility that the reverse of the price will go further than where it was when it began its approach to the ML.
Sliding Parallels Lines
They used as a reversal indicator in a case where the price fails to reach the latest Median Line and moved beyond from the parallel of the Median Line. If the price penetrates a parallel to the Median Line, then a small line formed by the extreme price of the candle that pierced the Median Line.
If then, the price penetrates the Sliding Parallel Line, then created a buy or sell forex signal.
Alan Andrews thought that 2-3 days was usually maximum to be in force a Sliding Parallel. It can, however, to extend and used as support or resistance.
Warning Lines
Ultimately, If we need to express a conclusion for Andrew's Pitchfork, then we can safely say that this is one of the most powerful and useful tools of forex technical analysis.
Also, if we consider the number of opportunities who offers during trading, we will fully understand why is so important in forex education.
No comments:
Post a Comment