Most traders shy away from Andrews' Pitchfork, maybe because it looks intimidating, kind of like Ichimoku Kinko Hyo or Gann Fan. The pitchfork can be an accurate tool and even more powerful when customized and combined with a few indicators.

A Brief History of Andrews' Pitchfork

Andrews' Pitchfork is based on Newton’s third law of motion. “For every action, there is an equal and opposite reaction”, some also extend this to, “For every positive action there’s a negative reaction.” So, when the market goes up, it must come down.

Roger Babson of Babson's Statistical Organization and Babson College (Massachusetts) used Newton’s third law to accurately forecast the market crash of 1929. Alan Hall Andrews was a student of Roger Babson and later a teacher of “Andrews Action Reaction”. He came up with Andrews' Pitchfork as part of his course. It’s important to note that, Roger Babson made a $50 million fortune using the third law of motion in the late 1920’s. Since then, the pitchfork has undergone many modifications such as Standard-Schiff Pitchfork and Modified-Schiff Pitchfork.

What guarantees you more wins than losses when using Andrews' pitchfork is that, price is proven to hit the median line with an accuracy of 80%. This means that even without implementing advanced pitchfork strategies, you are on the winning side.

5 Rules of Andrews' Pitchfork

Before and when using the pitchfork, always remember that:-

  1. The probability of the price hitting the latest median is usually high,
  2. On reaching the median line, the price reverses, consolidates on either side of the median or shoots (zooms or gaps) through the median,
  3. After passing the median, the price retracts and retests the median then continues,
  4. The price usually reverses at any median line or median line parallel,
  5. The Hagopian’s rule states, should the price reverse prior to hitting the median line, the resulting move in the opposite direction is usually stronger and more than the initial direction.

It’s important to master these 5 rules before you start using Andrews' Pitchfork in your trading.

How to Draw a Basic Andrews' Pitchfork

You can draw Andrews' Pitchfork manually by identifying Low-High points and then calculating the median of that line, but that would be reinventing the wheel same as drawing candlesticks by hand. Most charting applications will draw pitchforks for you.

  • After identifying High-Low-High (downtrend) or Low-High-Low (uptrend), go to your “retracements tab” and select “Andrews' Pitchfork”.
  • Place the first point on your furthest high or low (oldest), then the next two points on recent high and low.

As a beginner, you might want to start with the basic 3 medians before going on to extensions. These are the median (central) and the parallels, below and above the central median.

The above daily BRENT chart shows the Hagopian’s rule in effect. You can also assess the quality of the pitchfork by the times it has been tested by price action. Another way to test your pitchfork’s reliability is by modifying it to a Standard-Schiff Pitchfork then to a Modified-Schiff Pitchfork.

How to Draw a Standard-Schiff Pitchfork

Using a standard and modified-Schiff pitchfork, helps get rid of “market burbs” also called fakeouts before making an informed trade decision. To draw a standard-Schiff pitchfork, move the origin of Andrews' pitchfork to the middle (halfway) of the vertical distance between high-low.

From the Standard-Schiff Pitchfork above you can still see that price zooms (gaps) past the median line, consolidates and then retracts before testing the median line again. When the price tries testing the median again, it fails satisfying the Hagopian’s rule.

How to Draw a Modified-Schiff Pitchfork

Andrew and Schiff came up with a further modification of the Standard-Schiff pitchfork, moving the origin to half the vertical and horizontal distance between the high and low forming a triangle.

By doing this before making a trade decision, it is the same as waiting for confirmation from multiple indicators but you are only using one.

Note that, the Modified-Schiff pitchfork origin now moves to halfway between the high-low, low-high distance (lower edge of the triangle). The median line holds and the Hagopian’s rule is still in effect. Even without other indicators, we would be looking to sell as the median line is proving too strong for the price.

Predicting 2014 Oil Crash Using Modified-Schiff Pitchfork

After drawing the basic Andrews' pitchfork, we modify it to standard then to Modified-Schiff pitchfork to assess the quality of the pitchfork.

Trade Set Up

  • Using the modified-Schiff pitchfork, it’s evident that the median line is a strong resistance line and we would be looking to sell at this point.
  • When the Hagopian’s rule is in play, we trade against the trend. If it was trending up, we sell and vice-versa.
  • Our stop loss order would be 50 pips past the latest re-test.
  • We trade without a preset limit and use a trailing stop to lock in 50 pips per stop.

These would have been very successful trades, not to mention, just as the third law of motion was used to predict the market crash of 1929, our modified-Schiff pitchfork would have alerted us to the “oil crash of 2014”.

Caution When Using Andrews' Pitchfork

Over-reliance on technical indicators alone is a recipe for disaster. Fundamental and technical indicators should always be used together especially in long term trading. Even when using the pitchfork look for confirmation from at least two other indicators so as to know when to move your stops or take profits.
Translate to English Show original