Andrews' PitchforkThe perpendicularity of the Pitchfork channel depends on the placement of the three drawing points, especially point 1, which is the beginning of the midline. Although the first point usually starts with a reaction high or low, sometimes it is necessary to set point 1 to provide a realistic price channel. Unfortunately, there are no strict rules for placing points. Instead, cartographers should use judgment and experience when drawing channels. This is where the subjective nature of technical analysis comes into play. As with most aspects of technical analysis, it's important to build experience by trying Andrews' Pitchfork. Seeing firsthand what works and what doesn't is the only real way to master a gauge.
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Andrews' Pitchfork, developed by Alan Andrews, is a three-line trend channel tool; A median trend line in the center with two parallel equidistant trend lines on both sides. These lines are usually drawn by selecting three points based on high or low reactions moving from left to right on the graph. As with normal trend lines and channels, outer trend lines mark potential support and resistance areas. A trend stays in place as long as the Pitchfork channel is valid; Flashbacks occur when prices exit a Pitchfork channel.
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Choosing Three Points
The first step to using Andrews' Pitchfork is to select three points to draw the trend lines. These points are usually based on reaction highs or reaction lows, also referred to as pivot points. Chart 1 depicts McKesson (MCK) stretching his Pitchfork up from June's low. The first point chosen indicates the beginning of the median line. Points 2 and 3 define the width of the Pitchfork channel. The median line is based on two points: the 1st point and the midpoint between the 2nd and 3rd points. Therefore, the median line starts at point 1 and divides points 2 and 3 in half. This controls the slope (steepness) of the median line. The outer trend lines are then extended parallel to the median line. Red Andrews' Pitchfork, 1. shows an alternate median line for the point, based on the July low. Note that the red median line still divides the line between the 2nd and 3rd points in half, but is steeper than the blue median line. The pitch of the pitchfork depends on the placement of point 1.
Graph 2 shows a downward sloping Andrews' Pitchfork with Accenture (ACN). The blue median line starts at point 1 and divides the line between points 2 and 3 in half. Outer trend lines are parallel and equidistant to the median line. Red Pitchfork for the slope reference uses the low of August as point 1, which makes the midline steeper.
Flexibility with Point 1
Sometimes the median line needs to be adjusted to create a realistic slope. The pitchforks that are too steep break easily. Pitchforks that are too flat cannot catch the trend. Chart 3 shows Electronic Arts (ERTS) where Andrews' Pitchfork has been rising since late January. Ideally, point 1 is based on the low one for movement. Points 2 and 3 mark the initial response as high and the first response after point 1 as low. However, a median line based on the late January low coincides with support in March (green arrows) and resistance in July. More importantly, it creates a channel that contains price action for months. Note that ERTS is overbought when prices break above Pitchfork's upper trend line. The trend is completely reversed with the break below the lower trend line.
Graph 4 shows Intuit (INTU) with two possible Pitchforks. The red pitchfork is very steep. Note that the trend is not reversing when prices drop below the lower trend line at the end of April. The alternative was to base the median line on the low of mid-December. This creates a flatter Pitchfork that's more realistic for the uptrend. As with normal trend lines, steep trend lines are more easily broken. The validity of Blue Pitchfork was confirmed when prices reached resistance on the upper trendline in early April and found support at the lower trendline in early May.
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Support, Resistance, and Reversal
Pitchfork trendlines can provide support or resistance. In an uptrend, the lower trendline serves as support to define the overall trend, the upper trendline serves as resistance, and the median line defines the strength of the trend. During an uptrend, prices should regularly reach the median line. Failure to reach this line indicates the underlying weakness that could predict a trend reversal. Chart 5 shows Ciena (CIEN) rising within rising Dirgen. Notice how the low trend line offers support and how the median line offers resistance. While Ciena faced resistance at the median line during the uptrend, she managed to reach this line regularly to confirm the uptrend. Failure to reach the median line would indicate underlying weakness.