The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at toddstrade@gmail.com
I am always open to questions, comments, or suggestions on how to improve this blog.


Wednesday, March 31, 2010

Andrew's Pitchfork

I've been playing (and having loads of fun) with the Andrew's "Pitchfork" (or Andrews Median Lines as they are also known as) lately. There are plenty of links (well links within the links) to visit at the bottom of this post. For now, start with the basics,
Drawing the Andrews Pitchfork: see this link- Choose two alternating swing high/low pivots, label "B" and "C"- Construct the Median Line (ML) to connect "BC" with a third pivot. "This pivot usually immediately [precedes] price swing BC but it can be any pivot [preceding] BC."
So, essentially, you have two pivots that are bisected with a prior pivot, while extensions off of your "B" & "C" pivots become your Upper & Lower Median Lines (UML/LML) like so:There's also the Schiff Variation:
-Both share the same "BC" line, however the Schiff Meridian Line originates from the midpoint between A & B, like so:
This Schiff variation is good for using with gaps.

There's also the concept of including Upper and Lower Trigger Lines:
- Simply extending lines off of the AB point and AC point, like so:See this link for Trigger Line setups.

There's also the "Sliding Parallel Method" which I'm yet unable to comprehend.

Now some fun with charts: SPY Daily

The Schiff version - the handle (center line) originates at the mid-point between the A and B points:The Modified Schiff version - the handle (center line) originates 50% between the A-B points and directly above the "A" point.
Tradestation also gives you the ability to add parallel bands to the pitchfork (use for the Sliding Parallel Method?) to give midpoints between the BC lines or percentage extensions off of the pivots.Here are 3 forks in the recent SPY price action. I included a stochastic for the sake of strategy development which one might base trades off of, like those indicated by vertical dash lines.
Some more key concepts include:
- Median Lines should be tested before being traded off of.

"How do I know which pivots or swings to choose? The answer sounds simple-minded, yet it is the single best answer I can give: Draw many lines and use the lines that prices respect when you trade. Draw as many lines as your eye sees as pivots because, often, the first or second or third combination will not 'describe' any of the action of price when you first draw the MLs...I try different pivots, starting with major pivots in the weekly or monthly mode...and then draw MLs off of lesser and lesser pivots. I do erase MLs that are not of major pivots and do not 'describe' price."

"
The first simple rule is that downward sloping MLs indicate prices in a downtrend--downtrends are made to be sold and the Lower ML of a downward sloping ML describes prices that will trend lower. Upward sloping MLs describe uptrends."

"Most traders think that MLs are a stand-alone tool, but I was taught to always use them along with many other signs of support and resistance and it is the integration and interaction of these many tools that can make the techniques valuable.""...it would intuitively seem that major swings or pivots make the 'best' points to use for all Median lines. But in practice, the best points to use are the points or pivots that describe or contain the price action. I know there are 'purist' chartists and if that's your preference, then by all means, draw the lines that suit you. But the goal of the Median line is to contain or describe action as it unfolds--and so by all means, be creative. Often, it's the obvious pivots that work the best, but at times, you have to get your hands dirty. I'll give a few creativity hints: If all else fails or if you are looking to use these techniques on 'short term' trading, try using the highs of the three pivot points, or the low. Or use the extreme of a gap. Or use an extremely wide day as the high and low of an A-B-C. Try it. You can always erase it if it doesn't describe or contain action."
"
Don't blindly trust an untested line, unless you have other reasons to expect that support or resistance to hold. But once it has been tested and even better, when you can add the 'confluence' of other indicators like trend lines, fib projections and retracements, chart formations--then you can have much more confidence in the Upper and Lower Median and Center Median lines.""Actually, though it is very seldom taught, you can draw and use a Median line using the open high and close of a bar. Period. Does it work? It can. That depends on what you are trying to use it for. It can be great for setting stops, for example."


Click on all the links on this page, a wealth of information; http://www.trading-naked.com/AndrewsPitchfork.htm

2 comments:

Cristian said...

Sliding parallels are basically lines that run at the same frequency as the fork (draw a simple trendline over one of the fork lines) which can be used, as support and resistance, when you have, for instance, a large fork and want to play *inside* the parallel lines.

By moving the sliding parallel inside the fork and over intermediate/minor swings (to see if you have had it act as support/resistance in the past) is one more way to confirm that the fork carries frequency, therefore is drawn from correct swings A/B/C and is in play.

Hope you find this useful.

Regards,
Cristian

todd said...

Thanks Cristian. Very helpful.
The more I read about, and experiment with, the Andrews Median Line the more useful i find it to be.
If you have any further input, suggestions, criticisms, I would like to hear them.

-todd