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Training Video_26

 

The Andrews Pitchfork

This part is about the Andrews Pitchfork and action and reaction lines, mainly used to find price channels and price targets.

Alan Hall Andrews is known in technical analysis for creating a method called the “Andrews pitchfork”. 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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Hallo, Sylvain Vervoort with technical analysis part 26. This part is about the Andrews's Pitchfork and action and reaction lines, mainly used to find price channels and price targets. Pay a visit to my website at stocata dot org and buy my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system.

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

For the construction of the median line, you calculate the midpoint of the reaction BC, however this line is normally not drawn. Next you use a previous reference, high or low point, drawing a line through this midpoint. This is the median line.

A good trading indication is that price will return to the median line about 80% of the time

The median line is a resistance and support line, price will react around the median line.

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

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.

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 lines above and below the median line.  These three lines are called the Andrews pitchfork. Prices tend to move for some time within this pitchfork channel, similar to a trend channel. Like in a trend channel, prices will find support and resistance at the lower and upper side of the pitchfork channel.

 

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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. Note that the price will move regularly to and within the boundaries of these warning lines.

Based on the fact that for every action there is a reaction, you can think of two possible methods for drawing action and reaction lines. For the first method you use a reference line that can either be a pitchfork median line, a trend line, a center line, or a multi-reversal line. The action is the left side of the chart, or the past; the right side of the chart is the reaction into the future. Action lines are drawn under the same angle as the reference line, through a past high or low turning point. Note how past price action projected at the same distance into the future show price turning points and price movement with a similar angle.

For the second action-reaction method you can use the same three basic lines as with the first the action-reaction method; the reference line, the action line, and the reaction line. Here only one action line, a parallel line with the reference line, is drawn through a turning point in the past. Reaction lines are drawn parallel to the reference line and at equal distances from each other using the distance between the action line and the reference line as the basic measure. In the example here we use a simple downtrend line as the reference and the action line through a previous low. Note how price reacts against an inverse downtrend line and a normal downtrend line exactly in the neighborhood of the reaction lines. That way you can estimate future price levels and the expected time period.

July 7, 2003 you can draw an up moving pitchfork between the points ABC. The center line between the points BC is used as a reference line, with an action line through the low of point A.

Next you can draw the reaction line at an equal distance into the future. The median line of the pitchfork crosses this reaction line beginning of September. This is your time/price target.

The median line of the pitchfork and this first price target is as projected by the reaction line reached beginning of September.

If price continues the up move, you would expect price to move along the median line and within the pitchfork channel. The next target area would then be the reaction line anywhere within the pitchfork channel.

This second reaction line target is reached Januari 2004.

Price is still in an uptrend. So, let's have a look for the next target. This is the next reaction line and a price still within the pitchfork channel. The lowest target price will be the crossing of the reaction line with the lower side of the pitchfork channel.

This time/price target was reached in the lower part of the pitchfork channel April 6, 2004. Price fell out of the channel but remained above support and then re-entered the channel. Of course, you could draw and use short time pitchforks and action/reaction lines to get an even better estimate as to where and when price will be reaching the medium to longer term targets.  

OK, now it is up to you. Looking at this chart, where would you now draw a medium term pitchfork. And defining action and reaction lines and making use of trend lines and Fibonacci projections, what is your target price in case price continues an up move? You can find the solution at http://stocata.org/youtube/solutions.html , but stop the video and have a try yourself first!

This is the end of the part about Andrews's pitchfork and action/reaction lines. Tell your friends about these videos and while visiting my website order my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system. See you in the next video!

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