Introduction
Developed by Alan Andrews, Andrews' Pitchfork is a trend channel tool consisting of three lines. There is a median trendline in the center with two parallel equidistant trendlines on either side. These lines are drawn by selecting three points, usually based on reaction highs or lows moving from left to right on the chart. As with normal trendlines and channels, the outside trendlines mark potential support and resistance areas. A trend remains in place as long as the Pitchfork channel holds. Reversals occur when prices break out of a Pitchfork channel.
Picking Three Points
The first step to using Andrews Pitchfork is selecting three points for drawing. These points are usually based on reaction highs or reaction lows, also referred to as pivot points. Chart 1 shows McKesson (MCK) with Andrews' Pitchfork extending up from the June low. The first point selected marks the start of the median line. Points 2 and 3 define the width of the Pitchfork channel. The median line is based on two points: point one and the midpoint between points 2 and 3. As such, the median line starts a point 1 and bisects points 2 and 3. This controls the slope (steepness) of the median line. The outside trendlines are then extended parallel to the median line. The red Andrews' Pitchfork shows an alternative median line based on the July low for point 1. Notice that the red median line still bisects the line between points 2 and 3, but it is steeper than the blue median line. Pitchfork slope depends on the placement of point 1.
Chart 2 shows a downward sloping Andrews' Pitchfork with Accenture (ACN). The blue median line starts at point 1 and bisects the line between points 2 and 3. The outside trendlines are parallel and equidistant from the median line. For slope reference, the red Pitchfork uses the August low as point 1, which makes the median line steeper.
Flexibility with Point 1
Sometimes the median line needs adjusting to establish a realistic slope. Pitchforks that are too steep will be easily broken. Pitchforks that are too flat will not capture the trend. Chart 3 shows Electronic Arts (ERTS) with Andrews' Pitchfork extending up from the late January low. Ideally, point 1 would be based on the low for the move. Points 2 and 3 would mark the first reaction high and reaction low after the first low. However, a median line based on the late January low offers support in March and resistance in July. More importantly, it creates a channel that contains price action for many months. Notice that ERTS became overbought when prices moved above the upper trendline of the Pitchfork. The trend fully reversed with the break below the lower trendline.
Chart 4 shows Intuit (INTU) with two possible Pitchforks. The red Pitchfork was too steep. Notice that the trend did not reverse when prices moved below the lower trendline in late April. The alternative was to base the median line on the mid December low. This creates a flatter Pitchfork that is more realistic for an uptrend. As with normal trendlines, steep trendlines are more easily broken. The validity of the blue Pitchfork was confirmed when prices hit resistance at the upper trendline in early April and found support at the lower trendline in early May.
Support, Resistance & Reversal
Pitchfork trendlines can provide support or resistance. In an uptrend, the lower trendline acts as support to define the overall trend, the upper trendline acts as resistance and the median line defines the strength of the trendline. Prices should reach the median line on a regular basis during an uptrend. Failure to reach this line shows underlying weakness that could foreshadow a trend reversal. Chart 5 shows Ciena (CIEN) moving higher within a rising Pitchfork. Notice how the lower trendline offers support and the median line offers resistance. Even though Ciena met resistance at the median line throughout the uptrend, it managed to reach this line on a regular basis to affirm the uptrend. Failure to reach the median line would have shown underlying weakness. CIEN broke the lower trendline with a sharp decline in November. Notice that this break held as the trendline then turned into resistance.
Chart 6 shows CSX Corp (CSX) with a pair of corrections identified by Andrews' Pitchfork. Notice that both corrections formed after sharp advances. For the first correction, it was possible to draw Andrews' Pitchfork after the early July high. Notice that prices did not break the median line in late July. Also notice that prices held above the median line in August. This showed strength that led to a breakout in September. It was possible to draw the second correction after the early December high. Prices did move below the median line, but soon recovered and CSX broke resistance with a surge in January.
Trigger Lines
Andrews Pitchfork also incorporates the use of trigger lines. The upper trigger line is based on points 1 and 2. The lower trigger line is based on points 1 and 3. These lines are used for buy and sell signals. In a downtrend, a break above the upper trigger line triggers a buy signal. In an uptrend, a break below the lower trigger line acts as a sell signal. Trigger lines have been added to the CSX and CIEN charts above. These trigger lines are usually the same as normal trendlines drawn off two reaction highs or reaction lows. As such, their signals are often much later than the signals generated by Pitchfork breaks.
Conclusions
The steepness of the Pitchfork channel depends on the placement of the three drawing points, in particular point 1, which is the start of the median line. Even though point one usually starts with a reaction high or low, it is sometimes necessary to adjust point 1 to insure a realistic price channel. Unfortunately, there are no hard rules for point placement. Instead, chartists must use judgment and experience when drawing channels. This is where the subjective part of technical analysis comes into play. As with most aspects of technical analysis, it is important to build experience by experimenting with Andrews' Pitchfork. See what works and what doesn't work first hand. This is the only real way to master an indicator.
Using with SharpCharts
The Andrews Pitchfork tool can be accessed when annotating a SharpChart. There are four steps involved. First, click on the Andrews Pitchfork tool icon at the top. Second, move the cursor to the chosen starting point for the median line. Left click to set point 1. Third, move to the second point and left click to set point 2. Fourth, move to the third point and left click to set point 3. Andrews' Pitchfork will now appear on the chart with the median line and outer trendlines extended.
Further Study
Magazine: Support & Resistance with Andrews Pitchfork. This is an article by Barbara Star, Ph.D that appeared in Stocks & Commodities magazine. It can be found in Volume 13 (1995).
