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
I am always open to questions, comments, or suggestions on how to improve this blog.

Saturday, April 24, 2010

action reaction

The fundamental concept behind the Andrews Median Line (Pitchfork) is that of Action-Reaction, and as such can be broken down into vector analysis. It is not some useless drawing tool as I once thought it was. It is very much a way of marking a path in which price is likely to travel following a momentum shift. Much like the law of equal and opposite reaction, as price initiates an impulse followed by a pullback followed by continuation in the direction of the original impulse, the Median Line is a means to mapping that phenomenon.
Two recent charts that have caught my fascination are those of the Euro futures and the Dow Jones Industrials with an Andrews Median Line overlay. Of course this isn't a buy here, sell there type of tool, but used in conjunction with Support/Resistance and other price indications it can be valuable in terms of targets and determining price strength or weakness.
Recently the Euro has shifted into a downward slide. Once you have the initial 3 impulse points you can draw a road map for potential price trajectory. I have been following this chart for over a month now and have been quite impressed with the way it has contained price within the Median Line boundaries. Especially curious was the way it reacted off of a test of support. The 1.3250 was a previous support area, and after slicing through that to test 1.3200 the 25% warning line gave a potential support target. The short covering that ensued at this 1.32 level found resistance back at the pitchfork's mid-line, before rallying all the way back to the upper median line, where more profit taking occurred.
Next is the Dow Jones Industrial average on a monthly basis going back to the 1920's. Of course I used a log-chart to give a better depiction of price over such a long period of time. I also used a variation of the Andrews Median Line known as the Modified-Schiff variation (an available option in the Tradestation software). This variation to the Andrews pitchfork is used in cases when the price anchors used result in an overly steep projection.
The price anchors used are (1) the impulse off of the 1932 market crash lows, (2) the wave 5 termination highs, (3) the ABC correction lows. So, you have your 5-wave momentum impulse up (action), followed by an ABC correction down (reaction). Here's what you end up with; it slips out of the 25% warning line in the late 90's, but come on! Look at that bounce off of the mid-line in 2009!!