Andrews Pitchfork Strategy Guide
Andrews Pitchfork strategy is a channel-based trading technique that was invented by Dr. Alan H. Andrews based on “action-reaction” techniques. The channel consists of three lines. The first one locates in the middle and stands for the median line. To explain, the Andrews Pitchfork indicator is a median line tool. The other two lines are parallel and equidistant from the central one. To clarify, they act as supporting and resisting grades on the chart. This median line study is originally established on lines set drawn from valleys (downs) and peaks (ups) on the price chart. Joining them together, the line arrays nearly looks like a pitchfork of a farmer. That is where comes from the nomination. Today, we will explore some advanced notions about the Andrews Pitchfork channel trading Strategy. Also, we will dive into its modified variations such as the Schiff and inside pitchforks.
What is Andrews pitchfork ?
Andrews Pitchfork is a technical tool that graphically illustrates a trading channel in a trending forex market. The drawing tool has three essential lines that form a trending channel on the forex chart. The movement persists as long as the price activity remains inside the Pitchfork channel. Otherwise, the price reverses if the pitchfork channel is broken. The indicator plots multiple inside median lines and two equidistant outside grades. To explain, the Pitchfork canal has some other widespread nominations such as Andrews median lines, the median line method, the median line study, or simply median lines.
The pitchfork price channel helps forex traders to specify breakout and breakdown grades as well as medium-term and long-term trending channels. In fact, the Andrews pitchfork indicator does not suit for trading sideways moving cfd markets. Yet it only fits trending forex pairs experiencing a strong uptrend or downtrend. Yet, some variations of this forex drawing tool may suit sideways price moves. Hence, the indicator analyzes the general trend of the currency pair to establish possible entry opportunities based on price reactions to pitchfork lines in the foreign exchange.
Pitchfork median line
The median line of the pitchfork is the bisector of the Andrews channel. On the one hand, the pitchfork median line reveals the trend strength. To explain, there is a strong uptrend when the price tends to trade above this central line. Alternatively, there is a strong downtrend when the asset tends to trade below this middle line. On the other hand, the pitchfork median line serves as a critical area of support/resistance. Hence, the next targets would be outer trendlines in the direction of the breakout when the currency breaks the median line. To clarify, when the pitchfork median line is broken downsides, the lower outside bar is the next price goal. Conversely, when it is broken upwards, the upper outside bar is the next price aim.
What is Andrews Pitchfork indicator ?
Andrews Pitchfork indicator automatically draws three parallel lines in the mt4 chart to identify a price channel where the stock might exchange when it is trending upwards or downwards. The drawing tool shows whether the financial asset is experiencing a correction or entirely changing its direction. Hence predicts potential supporting and resistant levels within a defined canal. To explain, these levels are built from three successive highs and lows on the stock chart. Beneath is an illustration of the construction of the auto Andrews pitchfork indicator of the Tesla share in a Tradingview chart.
Note that the Auto pitchfork default setting of the indicator in Tradingview plots two supplementary lines set other than the median line and outside boundaries. That is to say, the drawing tool fields five different lines by default in Tradingview and can reach up to 9 lines set from settings. However, the pitchfork indicator in mt4 plots three lines by default in the MetaTrader 4 platform, as pictured earlier. Moreover, The mt5 Andrews Pitchfork channel draws additional signal lines in the MetaTrader 5 terminal.
Moreover, scheming the Andrews Pitchfork indicator on the trading chart maybe somehow tricky. Because traders can be subjective when identifying significant highs and lows of the price activity to draw the Auto pitchfork channel. To avoid this issue, the Tradingview platform offers the Auto Pitchfork indicator with the ability to modify the depth from settings. By varying the depth from the indicator settings, novice traders may find the best extreme points to draw the Auto pitchfork channel more accurately.
How to Draw those levels ?
In order to draw the Andrews Pitchfork pattern on the forex chart, traders need to follow these three simple steps.
Finding three turning points
The first one resides in finding three pivots from a key high or low and two subsequent reaction swing points that often constitute a market correction. These reference points must form the general trend of the forex pair. That is to say, the market must be trending either in a bullish or a bearish direction and not moving sideways.
Now let us detail how to pick up these points in order to draw the Andrews pitchfork indicator. Generally, the first pivot highlights the starting of a specific trending move. Then, the second reference point confirms the general trend in the form of a swing high during an uptrend and a swing low during a downtrend. Finally, the third turning point underlines a market correction by retracing the first swing movement. The EURNZD, H1 chart below illustrates how to find the three pitchfork points in the form of a triangle using a helpful technical tool that smartly identifies peaks and throughs on the mt4 chart.
Drawing the Andrews Median Line
The first point of the Andrews indicator marks the beginning of the pitchfork median line. And the middle of the distance between the next two swings marks the other key point to draw the median line correctly. Consequently, forex traders have to link second and third points in order to build a straight line that connects them. Then, they link the first point to the midpoint of the blue median line. Hence, the distance between the second and third points controls the Pitchfork channel width.
In short, the median line begins from point 1 and bisects points 2 and 3 to materialize. Therefore, it is built from two points like any other line. That is to say, the first point and the midpoint between the second and third swings. Note that the pitchfork slope depends on the steepness of the median line and more precisely on the location of point 1. Because outside borders are parallel to the median line.
Constructing the Pitchfork channel
The construction of the pitchfork channel is achieved after finding three turning points and drawing the Andrews median line. Just extend the median line and build two equidistant borders from it. This results in a complete Pitchfork trading channel of the Andrews indicator on your forex chart. Upper and lower borders define the trend channel with an Andrews Median line located in the middle.
What is schiff pitchfork ?
The Schiff Pitchfork is derived from the standard pitchfork by Andrews students. To explain, his student Jerome Schiff invented an alternative pitchfork structure that fits sideways and weakly trending markets. Because he claimed that the standard Andrews pitchfork was too steep to suit currencies that move in weak trends. The following graph shows what the Schiff pitchfork looks like:
What is the difference between standard and Schiff pitchfork ?
Both standard and Schiff Pitchforks create price channels, yet the Shiff structure is flatter. Also, the median line of the Schiff pitchfork starts from a modified location compared to the standard pitchfork. To explain, The origin of Schiff Pitchfork locates at half of the vertical distance between the first two turning points. Forex traders consider this modified version to be more reasonable for weakly trending or sideways moving currency pairs compared to the standard Pitchfork channel. In fact, it displays a shallower angle than the standard pitchfork.
How to use it?
Inside the pitchfork canal, prices often tend to gravitate towards the middle line and rebound from the outside bars of the chart. So, the logic behind this forex system uses the central line as a gravitation area and the two other envelope lines that support and resist the price activity during market corrections. Forex traders use the Andrews indicator in various ways that either consider trading inside the pitchfork lines or outside them. Below, we will detail those two main uses of pitchforks in forex trading.
Trading inside the pitchfork lines
Trading inside pitchfork lines of the channel is similar to trendlines trading. The upper trendline of the channel serves as resistance in a downtrend. Whereas, the lower one serves as a support in an uptrend. Hence, the most simple strategy resides involves going long when the price retreat from the lower trend line during an upside move. Conversely, going short when the price activity bounces from the upper trendline in a downside movement. Traders may take profit once the price of the currency reaches the median line. This CHFJPY chart example demonstrates a long entry based on the lower line of the pitchfork from which the price reverses.
Trading outside the pitchfork lines
Trading outside pitchfork lines of the canal is a breakout strategy in the foreign exchange. To explain, forex traders trade breakouts outside the pitchfork range in this case. This trend reversal system waits for the currency to break the pitchfork range in the opposite trend direction to get reversal signals on the forex chart. The previous chart has shown that the CHFJPY pair moved inside the channel during the upside move and then broke below the downer pitchfork line. This demonstrates a short signal based on the breakout of the outside downer Pitchfork line on the chart.
Andrews Pitchfork trading strategy example
Many trading strategies can be made using the Andrews pitchfork drawing tool. From one part, one of the Andrews Pitchfork strategies resides in trading Schiff lines. From another part, it can be built based on the famous price failure rule. In the following section, we will deeply discuss each Andrews pitchfork strategy separately with chart examples.
Schiff lines method
The Andrews Pitchfork strategy includes the usage of trigger lines. To explain, a trigger line system is also known as a Schiff line method. It originally serves as a warning line about the end of the prevailing trend in the form of a trendline that originates from point 1. The upper Schiff line passes through points 1 and 3. Conversely, it extends to point 2 from point 1 for the lower trigger line. To clarify, the pitchfork strategy resides in buying the currency pair with the breakout beyond the upper Schiff line composed of two reaction highs. Contrarily, the pitchfork system resides in selling the forex pair with the break below the breakout beneath the lower trigger line composed of two reaction lows. In short, if the price breaks the Shiff line, this signals that the prevalent trend is about to end.
Trigger lines example
The following EURUSD, H4 chart illustrates an Andrews pitchfork trading strategy using the lower trigger line. This lower Schiff line extends up from an August 20, low to August 27, another low of the same month. The EURUSD broke down the warning line on September 8, 2021. Hence, this generated a strong selling signal on the forex chart and the price fell considerably next to the breakout.
Price failure method
This Andrews Pitchfork strategy stipulates that the price activity will be approximately 80% of the time ranging within the pitchfork channel if the price does not fail to reach the median line. Because, when the price fails to do so, the trend would reverse very probably. Hence, forex traders predict a strong counter move applying the price failure method. Moreover, this strategy helps them to recognize whether a new emerging force, such as surging demand, is causing a new price trend. Consequently, foreign exchange traders may decode that the currency is probably mispriced by market participants.
The downer graph illustrates the price failure method with the EURNZD pair. In this case, the falling pitchfork envelopes the downside move perfectly. Nevertheless, was can witness how the price activity reversed next to its failure to reach the median line of the pitchfork channel.
Pitchforks are helpful drawing tools that help to illustrate price movements into a three-line channel. Both Andrews and Schiff pitchforks are profitable trading channels. Note that every type has its specifications. To explain, the Andrews Pitchfork canal best fits strongly trending forex pairs. However, the Schiff structure best suits weakly trending and sideways moving currencies. That is why forex traders need to identify the typology of the market trend before trading pitchforks. Multiple trading strategies can be constructed around pitchforks lines as a profitable forex system. Also, the Andrews pitchfork indicator works better with medium and long-term timeframes such as daily. Besides, the steepness of Pitchfork’s channel depends on the arrangement of the three turning points, especially point 1 from which starts the median line. In conclusion, Andrews’s system relies on the basic assumption that price activity tends to gravitate around the Pitchfork median line.