Andrew’s Pitchfork Strategy – A Powerful Price Action Strategy
The Andrew’s Pitchfork Strategy, also known as the Pitchfork tool is a rather unique trading tool that is widely used among price action traders. Developed by Alan Andrews and Roger Babson, the Median line or Pitchfork is based on Newton’s laws of physics, most importantly the tenet which states that prices which are in motion tend to react and move in the opposite direction when acted upon by external forces. The Median line tool is basically built on the principles of trend lines and is used to dissect a parallel trend line, thus giving rise to the famed pitchfork pattern.
In order to understand how to trade with Andrews’ Pitchfork, traders should first understand how to plot or use the median line tool.
Andrew’s PitchFork Strategy – How to Set it Up!
Traders need to locate three reference points on the charts, or pivots.
High – Low – High or Low – High – Low in consecutive waves. Once these pivot or reference points are established (which can be highs and lows of price) the Median line is projected accordingly.
The following charts illustrate an upward rising median line and a falling median line.
Falling Pitchfork, drawn by connecting High-Low-High
Rising Pitchfork, drawn by connecting Low-High-Low
As shown in the above two charts, once the Median lines are dawn, the next step is to look at the rules defined by Dr. Andrews.
Andrew’s PitchFork Strategy Trading Rules
Dr. Andrews defined 5 rules governing how prices react to the Median lines, they are summarized as follows:
- When prices are trading away from the Median Line, there is high probability that prices will reach the latest Median line (or ML for short)
- When price is trading close to the ML, they will either reverse, consolidate or zoom through the Median Line
- When price zooms through the ML, it will always pullback and retest the Median line
- Price can reverse at the Median Line or at the Upper or Lower Median line
- When price reverses before reaching the median line, it will move in the opposite direction and towards the nearest outer median line
From the above rules, we can therefore highlight the main points:
- When price breaks the Median Line, wait for the pullback to the median line and then buy or sell
- When price fails in reaching the Median line and reverses, price will eventually move to the nearest outer median lines
Other researchers into the Median line trading technique, state that price reaches the median line nearly 80% of the time, making this a proven statistic and on which cannot be ignored.
Andrew’s PitchFork Strategy – Buy and Sell Examples
In the first chart, we make use of the Andrews’ Pitchfork and illustrate a Buy signal based on the above rules.
Andrew’s Pitchfork Strategy – Buy Setup
In the above chart, after plotting a rising Median line, note the price action marked by 1. Here price tests the median line and then turn lower but fail to fall to the lower median line. In the subsequent minor rally, price moves higher and then touches the median line before falling back. Long positions are taken here with the stops at the previous low. Take profits are set to the corresponding outer median line, by using the vertical line tool, where price eventually hits the take profit.
Andrew’s Pitchfork Strategy – Sell Setup
In the next chart above, the falling median line signals that short positions are to be taken. Here, prices test the median line marked the first arrow on the left. After the test to the median line, price falls to the lower median line and quickly rallies back to the median line but forms a lower high. Sell positions taken at the previous low with stops at the lower high. Profits are exited at the nearest lower median line while the remainder of the trade is trailed or the position can be exit at key reversal points.
Andrew’s Pitchfork Strategy Final Note…
The Andrews’ Pitchfork trading is indeed unique and in fact forms the basis of many different trading strategies but primarily used with price action trading. There is a bit of a subjectivity involved in plotting the Median lines but once the lines are drawn, traders can refer to the Andrews’ rules on median line trading and trade accordingly.
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