Andrews pitchfork is an important technical analysis tool that helps traders and investors identify potential support and resistance levels. The tool was developed by Alan Andrews, a statistician, and trader.
Today, the tool is provided for free by all trading tools like the TradingView and the MetaTrader. In this article, we will look at what the Andrews Pitchfork is and how you can use it well.
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What is the Andrews Pitchfork?
As mentioned, the Andrews Pitchfork is a tool used to identify support and resistance levels. For starters, a support is often viewed as a floor where the price struggles to move below. A resistance, on the other hand, is seen as a ceiling where it struggles to move above.
The two are usually the most important levels in the financial market because they are where the price tends to reverse or continue.
The pitchfork is made up of three primary lines. It has a median line, which is usually at the center. It is then surrounded by an upper and a lower equidistance lines. Therefore, It is possible to add more parallel lines below and above the first support and resistance lines.
The chart below shows the EUR/USD with the Andrews Pitchfork added in it.
How to draw the Pitchfork Indicator
Like other technical tools, drawing the Pitchfork lines is relatively easy.
First, you must look at a chart visually and see whether the pitchfork is ideal. For that to happen, the chart needs to have important low (1) and high points (2). It also needs to have another third point, as shown above. The second and third points will always define the width of the pitchfork.
Second, select the Andrews Pitchfork tool on the trading platform. On the TradingView tool, the pitchfork is located on the left side, as shown below. The dotted line in the middle is the median line while all lines below it are the supports. The lines above it are the resistance levels.
Identifying the pitchfork
Finally, with the tool selected, point to the first level and then move it to the second and third levels. After doing this, you can change the colours for easier identification.
It is worth noting that while the pitchfork can be used across assets, it cannot be used in all types of charts. For example, it cannot be used when the chart is ranging or when the chart is moving horizontally.
How to use the Andrews Pitchfork
Using the pitchfork once you have added it to a chart is a relatively easy thing to do. You only need to identify the levels and anticipate the next move.
Use levels as entry points
First, you can use the levels as entry points. For example, you can use the four lines as points of entry. If the price moves above the median line, you can view that as an important buying point. On the other hand, if it moves below the median line, you can see it as a vital selling point.
Trend confirmation
Second, you can use the pitchfork as a trend confirmation level. For example, in the chart below, we see that the EUR/USD has started moving up above the second support level. Therefore, if you are long the pair, you should look at the first support carefully.
If the price moves above this level, it will send a signal that there are enough bulls in the market. The next level to watch will be the median. If it passes above this price, then the next target will be the first resistance and so on.
Shorting
You can also use the pitchfork when shorting an asset. For example, if you short at the second resistance, you can watch the first resistance to be your profit target. Later on, you can check the median line and so forth.
Combine with Fibonacci retracement
Fourth, you can use the pitchfork by combining it with other tools. The most common one you can use in this is the Fibonacci retracement. As we have written before, the retracement identifies areas of potential reversals.
Therefore, if you draw the two tools, you can easily see potential buying or selling levels. The chart below shows the two tools drawn in a chart.
In the chart above, we see that the second part of the Andrews pitchfork lines-up well with the 38.2% Fibonacci retracement. Also, the second line is at the same level as the 23.6% retracement. Therefore, if the price moves above the 23.6% retracement and the first support, it could be a good place to enter a buy trade.
Combine with other technical indicators
Most importantly, you can combine the Andrews pitchfork with technical indicators like the moving average and the RSI. For example, in the chart below, we have combined the pitchfork, Fibonacci, and a 25-day exponential moving average.
In this case, the pair will maintain a bullish trend so long as it is above the moving average. If it moves below, it may be a signal to exit.
Use pending orders
Finally, it is worth noting that you can use the pitchfork well using pending orders. For example, in the final example above, you can place a buy stop pattern above the first support and have a stop loss at the median line.
In this case, if the price moves above the support level, the stop trade will be initiated. It will then be stopped when the price reaches the median point,
Similarly, you can have a sell stop trade below the second support level. Therefore, if the price breaks below the lower line, the trade will be initiated.
Summary
The Andrews pitchfork is an important technical indicator in the market. Traders have used it for decades to identify support and resistance levels and points of reversals. You can experiment using the tool using a demo account.