The lines formed by Andrews' Pitchfork can help predict channels of support and resistance in a trending market.
Overview
Andrews' Pitchfork is a method of channel identification in a trending market.
This technique, in effect, splits a major channel into two minor equidistant channels.
The lines in the Pitchfork tend to delineate lines of support and resistance.
Andrews' Pitchfork was developed by Dr. Alan Andrews, based on what he called his "Action/Reaction" techniques. Originally called the "Median Line Study," this pattern is based on a set of lines drawn from peaks and valleys on a price chart. When linked together, the arrangement of lines closely resembles a farmer's pitchfork.
Dr. Andrews' median lines, and the pitchfork pattern, often indicate lines of support or resistance where prices tend to stall out or reverse.
Interpretation
Andrews' Pitchfork is plotted on a price chart as follows:
First, identify a significant reversal point (high or low) and this becomes Pt. A.
Draw a line (shown in red) from this point to the next significant reversal point; at Pt. B.
Then plot a line from a significant point early in the trend (Pt. C) bisecting the first line (in red) half way between Pts. A and B. This is the Median Line or "handle" of the Pitchfork.
Now, draw two lines parallel to the Median Line, one starting from Pt. A and the other from Pt. B. These form the "tines" of the Pitchfork.
Presto! Andrews' Pitchfork.
This is a quick introduction to the Pitchfork technique; Dr. Andrews' price study methods were typically much more complex than what I've shown here. He also counted waves using what he called the "0-3/4 pivot count rule" and the "5 count probability rule."
Signals
Watch for reversals when the price approaches or penetrates the lines of the Pitchfork. As with any trendline, the more often support or resistance is confirmed the more reliable the line can be considered. In the example above, the lower channel managed to contain most of the price activity - not perfectly - but enough to indicate that the channel was indeed providing important support and resistance.
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