Integrated Pitchfork Analysis: Basic to Intermediate Level (Mircea Dologa, 2009)

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  • Pitchfork
    • The technical indicator known as Andrews Pitchfork is not that well known and is rarely used by novice traders. However, it is a quick and easy way for traders to identify possible levels of support and resistance for an asset's price. It is created by placing three points at the end of previous trends and then drawing a line from the first point that runs through the midpoint of the other two points. The reason this indicator is called a "pitchfork" becomes apparent from the shape that is created in the chart.
  • Mark out its cardinal orientation
    • Where is the price coming from?
    • Where does it seem to be going? 
    • Is the market trending or non-trending? 
    • What is the market’s exact location within the whole context? 
    • How high/low is the morning, afternoon or day’s apogee (highest high)? 
    • What is the slope like, or how did the price reach the current location? 
    • Was there continuous movement, or did the price jump directly towards the high/low of the chart? 
    • How did the day finish – at an extreme point of the chart, or was there a last gasp in pre-close with the market closing with a huge counter price bar?
  • Support/resistance line
    • the old high/low levels; 
    • the levels pertaining to gaps: the recent gap’s high/low level and even the 50% gap’s Fibonacci ratio level; 
    • the all-time high/low of a security (example: high/low of a futures contract or stock); 
    • the Fibonacci ratios 0.38, 0.50 and 0.618; 
    • round numbers, or those in exact tenths, fiftieths, hundreds or thousands; 
    • a vigorous trend line, especially the ML of a higher time frame; 
    • a multi-pivot trend line, also called an unorthodox line; 
    • a chart formation pattern: its symmetry axis, neckline or an apex line of a triangle.
  • Mini-Median Line
    • The mini-median line is an indispensable trading tool to be used whenever a reversal is in view. 
    • It is one of the few tools that allows the trader to determine the difference between a pullback and a reversal. 
    • Once the reversal is in view, choose the best type of mini-median line (border, inside, reverse, steep or twin). 
    • When the mini-median lines are tested, pierced and zoomed, they behave in the same way as any other median lines or non-pitchfork-related trend lines
Unorthodox Trend Lines
    • The orthodox (traditional) trend line joins at least two points: a series of higher highs (in an up-trend) or lower lows (in a down-trend). Its characteristic is that it does not traverse the market (the price bars). 
    • The unorthodox, or multi-pivoted, trend line is somewhat different. It links a series of higher highs or lower highs belonging to the same trend and/or other trends. It differs from the traditional trend line because it traverses the market, camouflaged between the numerous valleys and peaks. This is why many traders are not familiar with their existence.
    • Get used to a daily routine, and to detecting the hidden unorthodox trend lines combined with the fan line concept. 
    • Don’t hesitate to look for specific trend lines: curvilinear and flat. 
    • Excel in the following topics: slope, strength and breakouts of a trend line. 
    • Don’t neglect to confirm the efficiency of a trend line breakout. 
    • Even if it seems obvious, ensure that you understand and practise the difference between the trend and trend line terminations
  • THE DEGREE OF THE SLOPE
    • the steeper the slope, the less valuable the projecting value; and 
    • the lesser the slope, the more important the out-bursting breakout
  • DEGREE OF STRENGTH
    • The longer the trend, the stronger the trend line will become: the trend line of a 21-bars trend is much more resistant to being broken than that of a 13-bars trend. 
    • The higher the time frame, the more resistant its trend line: a trend line on a monthly chart is far stronger than a trend line on a daily chart.
  • CONFIRMING A BREAKOUT
    1. The closing price: after piercing the line, the price might close two times in a row on the other side, in the direction of the reversal. Then it is very possible that the breakout will be confirmed. 
    2. The bar count method: the Fibonacci bars count and momentum bar count techniques are detailed in Volume II (in preparation). 
    3. Revealing the culmination of a trend, which will underpin the trend’s termination and the breakout of the trend line:
      • measured moves, especially for chart patterns
      • triangles, rectangles, head-and-shoulder and others; 
      • circular points using Fibonacci circles and ellipses; 
      • square root increments and percentage change; 
      • the square of nine by Gann, in time and price; 
      • and others.
    4. Confirm the breakout of the trend line when a certain arithmetic price limit percentage value is reached, away from the breaking point: 
      • a penetration of 1% for intra-day; and
      • a penetration of 3% for swing trading.
  • BREAKOUT EFFICIENCY OF A TREND LINE
    • An efficient first time breakout is the exception, not the rule. If it does take place we could well say: ‘the bigger the burst, the higher the thrust’ (of the breakout). 
    • A false breakout is when, in the case of an up-trending move, the price returns to the newly-labelled support line (old resistance) within a few bars. Once it touches the support line it can either bounce away again or return to its departure point under the newly-created support. 
    • A throwback is when the returned price goes further through the breaking line, until it is quickly halted by a stronger support level. 
    • A bull trap is a version of the throwback described above, but in which the price drops beyond the 100% retracement of the previous swing. 
    • The behaviour of a chart after the termination of a strong trend is mostly made up of a consolidation area, especially if the trend line was very steep. 
    • The duration of a trend line should never be questioned. There are two specific aspects: 
      • the duration of a trend during its three phases (inception, development and termination), which will be valid until the weight of evidence confirms the reversal. Its trend line plays the S/R functions during the duration of the trend; 
      • the duration of a trend line can last as long as the cash markets exist. As for the futures market, it will be there for the duration of the contract. It could reverse from a support function to resistance and vice versa.
Schiff pitchfork
  • when the traditional pitchfork pattern cannot be drawn because it is not possible to detect either the anchor (P0), the P1 or the P2; 
  • at the reversal’s low or high, in order to optimally describe the ensuing trend;
  • when a trading range is in progress, or we are in an energy-building rectangle, whether or not the minor pitchforks are used.
Action and Reaction Lines
  • The efficiency of Action and Reaction Lines is based on Newtonian principles. Sir Isaac Newton (1642−1727) claimed that: ‘Truth is ever to be found in simplicity, and not in the multiplicity and confusion of things.’ His genius marked not only the 17th century but also the future of mankind. In his works, he stated:
    • Geometry is founded in mechanical practice, and is nothing but a part of the universal mechanics ... the description of right lines and circles, upon which geometry is founded, belongs to mechanics. Geometry doesn’t teach us (how) to draw these lines, but requires them to be drawn.
  • For every Action there is an equal and opposite Reaction.
Fibonacci Price Line
  • If there is a trading secret, it is to learn how to anticipate market movements, by using the Fibonacci tools, but ... don’t forget: Let the market come to you! Thus, the rigorous follow-up of the market’s meanderings will naturally guide you to making the best trading decisions. 
  • Master all four techniques: internal and external price retracements, alternate price and expansion projections (Fig. 14.25). Do not forget that the latter only has a confirming role. 
  • Do not overload your mind and your chart with all the Fibonacci ratio numbers. Constantly practise your market, learn its habits, and later on, after a couple of thousand charts, you will know not only the behaviour of the market flow, but also the most significant ratios, including the adequate Despair Return Points! 
  • Whenever these techniques are applied, do not neglect to take into consideration multiple swings, in such a way that the outcome will easily create a cluster zone strong enough to impose its law on the market flow. Apply these tools also to: the last significant trending bar (top/bottom), the opening gap, the rectangle-type consolidation within trend’s development, the consolidation area at the top/bottom, and so on. 
  • Even if these techniques are very well performed, there will be no efficient trading results unless you take into consideration the territory ahead of the gap/market, in such a way that the key levels are systematically catalogued. Thus, the risk of the end run is fully avoided, and the market flow will develop its full trending potential. 
  • Keep in mind the concept of the borderline syndrome for the crowd’s psyche, concerning the bias decision-making. 
  • Do not forget to use the Fibonacci lines rigorously as an integral part of the mapping context. As we said: play the role of a maestro!

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