Andrews’ Pitchfork is a technical indicator that can help traders determine the future price movements of a stock or forex trade. The pitchfork reveals areas of support and resistance that can help traders map out momentum and reversals. Alan Andrews invented this drawing tool in the 1960s. It consists of a median line in the center, plus an upper and lower line that are equally distanced from the median. This guide will explore how Andrews’ Pitchfork works and ways you can incorporate it into your trading strategy.
How to Draw Andrews’ Pitchfork
Traders must start an Andrews’ Pitchfork by identifying a trend and finding the median point. Then, they draw a line from the median price point to the end of the stock’s chart. This line goes in the direction of the stock price. If shares are down, this line will go down and to the right. However, if the stock rallies, it will go up and to the right.
Once you have established the median line, the next step is to find the highest and lowest price points during this market cycle. If the median price point is from one month ago, you can only look at the highest and lowest prices from the past month. The trader then draws lines from these two price points parallel to the median.
The trendline from the higher price point acts as resistance. It’s bullish if a stock breaks above this line, but it is bearish if it approaches this line but shows weakness after failing to break above it.
The trendline from the lower price point acts as support. If a stock reaches this trendline but rebounds, it’s bullish. The stock may return to the median, which would be good news for traders with long positions. However, if a stock falls below its resistance line, it is a bearish event that may indicate more downside.
Interpreting Andrews’ Pitchfork
Andrews’ Pitchfork can help traders plan their entry and exit points. Traders view the median line as a target zone where the price drifts back to over time. If a stock’s price goes above the median line and stays within the pitchfork, the theory is that the price will drop back to the median level.
The same scenario is true for dips. If a stock’s price drops and stays within the pitchfork, traders may believe that the stock will eventually return to the median. Traders who believe in this outcome may buy shares when the stock price gets close to the lower line, also known as a lower channel.
Detecting Pullbacks and Breakouts
Traders can use Andrews’ Pitchfork to discover potential pullbacks and breakouts. A pullback can occur if a stock fails to break its resistance line. Breakouts occur when a stock breaks its resistance line, a bullish event.
Breakouts indicate the start of a new trend and will eventually require a new Andrews’ Pitchfork. However, a breakdown is also possible. That’s when a stock falls below its support line. It’s a bearish indicator that may require you to redraw your Andrews’ Pitchfork.
Traders can add an extra line to the fork if the stock price extends beyond the upper or the lower end. You can add a new parallel line with the same distance between the median line and the upper or lower line, depending on which line the stock price broke past.
Andrews’ Pitchfork in Different Market Conditions
Andrews’ Pitchfork is one drawing tool you can use to discover opportunities in the stock market. While this technical indicator is more effective in trending markets, you can still use it in ranging markets. You just have to establish a median point and draw separate lines for the highest and lowest prices within the range.
The best traders don’t rely on a single technical indicator. Instead, they use multiple indicators to create a more effective trading strategy. For instance, looking at a stock’s 50-day moving average can help confirm the trend from Andrews’ Pitchfork. If a stock breaks its resistance line and is above its 50-day moving average, it serves as a double confirmation.
However, you can end up with conflicting information. For instance, assume a stock falls below its support line. While this is a bearish sign, assume that this same stock soon reclaims its support line and gets past it. In this scenario, Andrews’ Pitchfork may look bullish, but it can be bearish if the stock is well below its 50-day moving average.
You don’t just have to rely on moving averages. Investors also use Fibonacci retracements, oscillators and other technical indicators alongside Andrews’ Pitchfork. These indicators further confirm an opportunity and offer a greater perceived sense of certainty.
Using Andrews’ Pitchfork in Your Trades
Andrews’ Pitchfork is a useful drawing tool that helps traders map support and resistance lines. Mapping how a stock’s price moves within the pitchfork can help traders identify reversals and trends. Knowing this information can help traders generate more profits and increase their probability of success. Andrews’ Pitchfork is one of the many technical indicators you should have in your trading toolbox.
Frequently Asked Questions
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Andrews’ Pitchfork theory uses a median line and two parallel trendlines to gauge how a stock’s price may move.
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No technical indicator offers guaranteed results. Andrews’ Pitchfork helps reveal how much a stock’s price can deviate while pinpointing support and resistance lines. It can help some traders boost their profits, but you should incorporate multiple technical indicators.
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Its accuracy varies for each person since it depends on your median point. Furthermore, there are a lot of factors outside of your control that influence stock prices. While Andrews’ Pitchfork is a useful tool, it offers no guarantees.
