Technical Analysis Price Projections Part 3

Andrews Pitchfork

Alan Hall Andrews is known in technical analysis for creating a method known today the “Andrews pitchfork”.

Action-reaction

Andrews describes his application as the median line method. The application of the median line method came from the ideas of Sir Isaac Newton and Roger Babson, including, among other things Newton’s first law: “For each action, there is an equal reaction.”

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The Median Line

Construction

 

Figure 9.9: Construction of the median line.

1. Calculate the midpoint of the reaction B-C (the line B-C is normally not drawn).
2. From a previous reference, high or low point, draw a line through this midpoint. This is the median line.

Trading Based on the Median Line

 

 

 

 

 

 

 

 

 

Figure 9.10: Price returning to the median line 80% of the time.

1. The price will return to the median line about 80% of the time (figure 9.10).

 

 

 

 

 

 

 

 

 

 

 

Figure 9.11: Median line showing support and resistance.

2. The median line is a resistance and support line. The price will react around the median line (figure 9.11).

3. The price returning to the median line often will move for some time around that median line before a new direction is chosen (figure 9.11).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 9.12: Price not touching the median line will push price in opposite direction.

4. If the price does not complete touching the median line, it will move in the opposite direction, past the price turning point used for the construction of the median line (figure 9.12).

The Pitchfork

After calculating and drawing the median line, Andrews added two additional lines parallel to the median line, from the points B and C.

This created parallel lines above and below the median line. 

 

Figure 9.13: Andrews pitchfork channel.

These three lines are called the Andrews pitchfork (figure 9.13). Prices tend to move for some time within this pitchfork channel, similar to a trend channel.

Like in a trend channel, prices find support and resistance at the lower and upper side of the pitchfork channel.

Warning Lines

Andrews then added parallel lines in the past and the future at the same distance as the parallel lines from the median line; he called these warning lines.

 

Figure 9.14: Pitchfork warning lines.

In figure 9.14, you will notice that the price will move regularly to and within the boundaries of these warning lines.

Search the Internet

 

I use the Andrews pitchfork mainly as a price target tool to see if price is reaching the median line (80% of the time). If price does not reach the median line we know to what level it will move next as a minimum. Additionally the outer lines of the pitchfork are quite effective as a trend channel giving us upper and lower boundaries for future price moves.

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