Andrews Pitchfork
Andrew's Pitchfork is a 3-line trend line that is used to identify trading channels. It works best on trending markets, for all time frames.
Draw Andrew's Pitchfork
- Right-click on the chart to display the context menu.
- Highlight Add Drawing, then click Andrew's Pitchfork.
- Click three times on the chart, where each of the trend lines should be placed.
Theory
Trend lines have been applied to all markets in all time frames. A rising market bounces up off its supporting trend line and a falling market bounces down off its resisting trend line. In the former case, the trend line provides a buying point at each bounce. If this market is still trending higher (i.e. - does not break its trend line) there is no signal given as to when to sell to lock in profits. By drawing a parallel line to the trend line, a channel can be created which contains all short term rallies and declines within the general trend. The bottom trend line can be used to buy into the rally and the top trend line can be used to take short term profits. After selling, the trader would then wait for the market to hit the bottom trend line to buy again.
Interpretation
The bottom trend line can be used to buy into the rally and the top trend line can be used to take short-term profits. After selling, the trader would then wait for the market to hit the bottom trend line to buy again. It is common for a market to trade in the lower channel, jump to the upper and then back to the lower. During all of this activity, the general trend is still intact. When prices move outside the larger channel, the overall market trend may have changed.
The Fibonacci Connection
Pitchforks can also help identify trading channels before simple parallel trend line drawing can. By using an already established market move (retracement) as the width of the channel, the median and parallel lines can be constructed, giving the trader early targets for short term trading within the new trend. These market retracements generally occur at Fibonacci levels so a pitchfork can almost be considered to be Fibonacci lines on an angle.
Reference: "Real World Technical Analysis", published by Commodity Research Bureau