FredE,
Thanks...whenever you get to it. Sounds like you should kick back and worry about it later, but your call.
I think that we are read by some people who get the Omega list. I see Andrew's Pitchfork is now being discussed over there. I am re-posting this from the Omega list. I have left off names and hope that I am not out of line for taking it from there and posting it here, but I found it helpful and maybe others will too.
-Scott
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Several people had written me about the use of Andrews pitchforks, or at least
how I use them in my trading. I know there are now several people out there
teaching 'new and improved' techniques [I know one person has renamed them
Newton lines], and I think any tool is only as good as the training and
creativity of the person that wields it, so remember this is only how I use them
and what I was taught and developed. I'm a simple old fashioned chartist--I do
use TS to show me quotes and perhaps a line or two here and there. When I see
interesting tools used by others, I take them into my trading room and examine
them. I do sometimes add tools to my trading, but not until I have carefully
examined them, taken them apart, tested them paper trading. I need to see how
the work and how they don't work. Andrews lines are not the only tool I use, but
they are a good tool. They work in my hands--you may find them useless. I don't
advocate their use, but then, it cost you little to read this post, and not much
more to delete it if you find the information found within useless to you. I
have nothing to sell and no agenda. Don't trust my words or anyone else's words.
Trust your own work. Only a tool that your hands can work with is useful.
John:
Feel free to send me all the questions you have about Andrews pitchforks and
I'll do my best to tell you how I use them and what I was taught about them. The
first thing I was taught, and it still remains the most important, is to just
keep drawing new pitchforks whenever anything that looks like a pivot appears.
Now, it's much easier these days, since most of us are using a computer program
to generate the pitchforks. But when I first started trading, we were charting
by hand. And I still do my end of day data by hand [Ok, I am a bit behind since
the little guy arrived]. But by drawing by hand, we were forced, in a way, to be
careful not to erase too much--we were forced to leave a bit of what at first
seemed clutter--pitchforks that at one time were useful, but for now, price may
have left behind. Let me say one thing more before I explain further why that's
important.
Ok, so which pitchfork do you trade on?? That's always the question everyone
asks time and time again. Ok, there are major pivots on a chart that have
already occurred. Drawing that pitchfork is easy, and usually that pitchfork
will give you some guideline about future prices. But it is usually rough and
large--if you traded off of that all of the time, you might be very far from any
support or resistance. So once we put in the major pitchfork off of the major
pivots, we look at lesser highs and lows and we draw those pitchforks in. Which
are important? Well, after we draw one in, we look at it: Does it contain price
at all--does price 'respect' it's boundaries at all? Has price tested it's lower
or upper boundary or the median line? The more a line is tested, the more
important it becomes.
This testing of lines is applied to trend lines and pitchforks and vertical
lines and horizontal lines--when a line contains price, it becomes important.
Similarly, where two or more lines intersect, especially if these lines
contained price, expect that if price approaches the intersection, a pivot is
likely. The more important the lines, the more likely the pivot. These lines can
be the upper, lower and median line of the pitchfork formations, they can be
trend lines, they can be vertical or horizontal lines through price
support/resistance--all of these may be important to containing price.
Trading is not perfection--this is the real world. And so at times, price may
run through the upper or lower or median line of a pitchfork, and then trade
right back through the line, as though it had never breached the line. If price
then respects the line, treat the line as having been tested once and survived
the test. A useful line is also generated from this penetration--draw a parallel
line now to the upper or lower or median line that was penetrated and if price
again penetrates the pitchfork boundary, expect it to respect this parallel
line. If this parallel is breached, the boundary has been broken.
A last useful technique is called a Babson reaction line. When you have a
pitchfork that is containing price a number of times, that means the outer
boundary has been tested a number of times. Obviously time always marches on
[meaning, the time scale on a chart moves further right] and so unless a
pitchfork is basically parallel to the horizontal axis, price will eventually be
forced out of the boundaries by the march of time. Even in the case of such a
breach, the pitchfork has at least one other use: Draw a parallel line to the
right of the lower median line that is as wide as the original pitchfork. If
this pitchfork was powerful, meaning it contained price over a period of time
and was tested, then price often respects that parallel line, and that is called
a Babson action/reaction line. It can be drawn parallel to either side of the
pitchfork and it is usually extended four times, each time a width of the
original pitchfork.
Note that when you choose major pivot points, an Andrews Pitchfork formation
captures the action of a trend very much like a linear regression line and it's
standard channel, only in this case, the outer boundaries of the channel are
drawn directly off of the pivot highs and lows. I certainly do look at
regression channels now that they are so easily drawn on a charting screen, but
often I find that the pitchfork drawn directly off of the high and low pivots
contain price as well, perhaps better, than the regression channel.
Your charts will look cluttered--but again, you are looking not only at the
upper, lower and median lines of the pitchforks, but the intersections of all
lines and how price respects the lines. Again, the more a line is respected, the
more likely it will be respected in the future [and the more significant it's
penetration would be].
I hope that answered some of your questions and I'm sure it will spur others.
Just drop me a line or post the questions. I started to send it directly to you,
then realized I had at least one other request, so I sent it to you and also
posted it. |
