Andrews' Pitchfork or Median Lines
What is the Andrews' Pitchfork?
Andrews' Pitchfork, which is also known as Median Lines, is a support and resistance indicator that was developed in the 1970s by a Thermodynamics Professor at MIT, named Dr Alan Andrews. Andrews' Pitchfork uses three parallel trendlines based on three alternating pivot highs and pivot lows, or swing points, to identify possible future support and resistance levels.
The first swing point forms the starting point for the median line that extends through the midpoint between the second and third swing points. Two lines starting from the second and third swing points are drawn parallel to the median line to form the pitchfork.
How is Andrews' Pitchfork calculated and drawn?
The trendlines are created by placing three points at three consecutive peaks or troughs, or pivot highs and lows, at the start of a trend. A straight line is then drawn from the first point, intersecting the midpoint or the median of the other two points. For this reason, Andrews' Pitchfork is also called "median line studies". Parallel, equidistant lines are then drawn from the second and third points. The result is a trend channel with a median line in the middle.
Most modern charting software packages include Andrews' Pitchfork as a drawing tool that is applied to the price chart as an overlay, though it might be called Median Lines on some charting software packages.
How to select pivots for Andrews' Pitchfork?
Dr Andrews suggests that any three alternate pivot points or swing points can be used when drawing the pitchfork. These pivot points could be a high-low-high, or a low-high-low. The resulting pitchfork would provide insight to the potential strength or weakness of the price action as the price interacted with the lines of the pitchfork.
How is Andrews' Pitchfork used and interpreted?
As with any other channel, the outer trendlines mark potential support and resistance levels. The prevailing trend is said to remain intact as long as the Pitchfork channel is not violated and a trend reversal is said to occur when prices break out of a Pitchfork channel against the direction of the trend.
Thus, in an uptrend, the lower trendline acts as support and the upper trendline acts as resistance, while the median line determines the continued strength of the trend. The price movement of the underlying security should move from the lower trendline and reach the median line on a regular basis during an uptrend. If the price fails to reach the median line, it implies that there is weakness in the trend that could foreshadow a trend reversal. This reversal would occur when the price movement breaks support, i.e., when it breaks below the lower trendline. Once the support line is broken, it could act as a resistance line. The reverse is true for a down trend.
The price failure rule
According to Dr Andrews, price action should reach and bounce off the median line 80% of the time. When the price action fails to reach the median line before changing direction, it indicates a weakness in the current trend. This weakness and potential change of trend direction, or trend reversal, is confirmed when the price action violates the outer lines of the Andrews' Pitchfork. A trendline drawn from the peaks or troughs can then be used to confirm the trend reversal.
How to Trade with Andrews' Pitchfork
Andrews' Pitchfork offers various trading opportunities. Once drawn, the median line of the Andrews' Pitchfork becomes a significant support or resistance line. Price action can be expected to bounce off the median line. It is thus possible to enter a long trade in an uptrend at the median line with a stop loss placed somewhere below the median line; or go short in a downtrend with a protective stop loss placed just above the median line. A price target would be the region of the outer parallel line.
Should the price action fail to reach the median line, anticipate a change in trend direction. Possible entry points are: when a trendline is penetrated; when the outer line of the Andrews' Pitchfork is violated; or when an oscillating indicator displays divergences. Here a protective stop could be placed just inside the Andrews' Pitchfork.
As always, plan your trades, trade in the direction of the larger trend, use protective stops, and trade to your plan.
Chart Example
The following is a 4-hour chart of the Euro/USD with an Andrews' Pitchfork drawn from three pivots that mark the start of the current down trend starting with the last swing high made on May 1, 2013.
Andrews' Pitchfork on a 4 Hour Euro/USD chart