Pitchfork is a technical indicator developed by Alan Andrews. This indicator consists of three parallel lines- These three lines help us identify the possible support and resistance levels. They also do help us in recognizing potential breakout and breakdown levels. With this, we can identify possible trading opportunities in the Forex market. Long term investors use this indicator to identify and gauge the overall cycles that affect the activity of the underlying currency pair.
Three lines of Andrew’s pitchfork tool are as follows. The first one is the median trend line in the center, and the two equidistant trend lines on each side. Moving from left to right of the chart, these lines are drawn by selecting the three points, which are usually a reaction of highs and lows. As long as price action holds inside the Andrew pitchfork tool, it indicates that the trend is in place. Reversals occur when the price breaks the pitchfork.
Andrew’s pitchfork indicator can be used on all the timeframes, and it works on every single chart. Note that this indicator works very well on all types of securities, such as stocks, cryptocurrencies, futures, or the Forex market.
Picking The Three Points
The first step to know before using Andrew’s pitchfork tool is to select the three points for drawing the trend lines. The first point that we chose must be either a high or low that occurs on the price chart. Once that point is chosen, we must identify the trough and peak to the right and left sides of this point. This must be a pullback, which is opposite in the direction of the ongoing trend. Once these points have been isolated, the indicator is placed on the price chart. The two prongs formed by the peak and trough serves as a support and resistance of the trend as shown below.
Trading Strategies Using The Andrew Pitchfork Tool
Mini Median Method
This one is the most basic and popular strategy used by the traders to trade the market using the Pitchfork indicator. We must place the Andrew Pitchfork tool in a strong ongoing trend and look for the buy/sell opportunities.
In the below image, we marked a few trading opportunities presented by this indicator. We can see that when the price hits the lower line of the tool, we went long. Likewise, we have activated sell trades when the price action hits the median line. This strategy is basic, but it provides a good risk to reward ratio trades in a strong trending market.
In case of a buy entry, exit your position when the price hits the median line. Conversely, take sell when price reverses at the median line, and we can book our profit at the lower line. Place the stop loss a few pips above your entry and ride the move.
This approach works best for aggressive traders who prefer to pull the trigger when prices reach any significant level. So, if you are an aggressive trader, you can go with this approach. But if you are a conservative/confirmation trader, follow the next strategy.
For Conservative Traders
Most conservative traders do not prefer taking many trades in a single day because they tend to seek extra confirmation before pulling the trigger. This Pitchfork strategy is for them.
When the price action approaches the lower line of the indicator, wait for the price action to hold there to take entry. The holding confirms that the price action respects the dynamic support line, and going long from here will be a good idea.
As you can see in the below price-chart, the USDJPY was in a strong uptrend. We have identified three opportunities to go long, but out of three, only two trades were held at the lower support line to confirm the entry. Both of our trades worked very well, and they went on to make a brand-new higher high.
By using this approach, we can safely trade the market. We must always go for smaller stops because the holding at any significant area confirms the power of buyers.
Breakout trading is a popular way to trade the markets. Most of the highly successful traders, market technicians, chartists, banks, hedge fund managers use this approach to trade the Forex market. In this strategy, let’s understand trading the breakouts successfully by using the Andrew Pitchfork tool.
The idea is to find a strong trending market first and wait for the price to pullback. When the price gives enough pullback, place the Andrew pitchfork tool on price action and wait for the breakout in the ongoing trend direction. When the breakout happens, take the trade in the direction of the ongoing trend.
As you can see in the below image, the USDJPY was in an uptrend, giving quite deeper pullbacks. When we got enough pullback, we applied the tool on the price action, and when the breakout happened, we went long. Look for the breakouts only in the direction of the ongoing trend.
The chart below represents our buy entry and risk management in this pair. We went long when the breakout happened, and the stop-loss order was placed just below the breakout line.
There are several ways to book our profits. We can use indicators like RSI and Stochastic to confirm our exits. Here we have used the pitchfork itself to book our profit in the above-discussed trade. When we activate a trade at the breakout, the first thing we must do is to apply the Andrew Pitchfork tool in the direction of our trade and wait for the price action to break the tool to book the profits.
In the below image, we applied the tool when our trade took off, and at around 109.60, the price strongly broke the Andrew pitchfork tool. This is an indication for us to close our whole buying position. Also, you can notice that after our exit, the price action blasted to the south.
Just like other trading tools, Andrew pitchfork is not perfect. We need to have strong knowledge of the money management techniques in place before using this tool on live markets. If you are a novice trader, it is advisable to gain experience by experimenting with this tool on the demo account. Using this tool first hand, we are sure that you will discover various ways of using this tool. This will enhance your ability to understand the market better. Cheers!