Hello fellow TL traders,
With all the great threads on Traders Lab, I couldn't find one on the Andrews Pitchfork, so I've decided to start one. The problem is, I know only a little bit about AP, but from what I've learned, I think they have great potential. Of course, the master of AP is Timothy Morge, and he has a ton of free info on how he uses pitchforks, but I thought it might be useful to recap some of it here on Traders Lab.
[having some sort of trouble uploading my chart---I'll post this message sans chart and then try to put the chart in the next post].
See attached chart. Shown is a bearish pitchfork. To create an Andrews pitchfork, you need three pivots, a high, low, high (bearish) or a low, high, low (bullish).
The pitchfork on this chart shows some classic features that Tim Morge teaches:
1) there is a nice test of the upper line, showing that the market appears to be respecting the three pivots you chose for the fork. This gives an increased probability that the fork will work. Morge says he NEVER trades a fork he's drawn unless it is successfully tested first.
2) Now that the fork has been shown to have some validity, the first target is the median line, the line in the middle. Morge says that there's an 80% probability that the median line will be reached (after a successful test of the fork), and he has some massive statistics to back up his claim. Mind you, he's a consummate master at finding just the right combination of pivots with which to draw the pitchforks. Aye, there's the rub--the "artistic" part of all this is knowing where and when and how to draw the pitchfork.
3) The idea is to place your short entry just after the test has completed, with a protective stop above the pivot at point C. The proper placement of stops is a big deal with Morge, and he has lots of useful rules for how and when to "hide" your stop behind support or resistance areas. He will move his stop (down, in the case of my bearish example on the chart) as soon as price has moved below a S/R area, but not before.
4) As price comes down toward the median line, you can (hopefully) see a region of back and forth action which Morge calls "coiling action". Pretty much it is what it sounds like---price action is coiling up and storing energy for a further move in the direction it was originally going. In other words, this is a continuation-type pattern.
5) Once price reaches the median line, it bounces off, and the wise trader will exit a large portion of his position, leaving a small portion (how much should be determined by your aggressiveness and risk/reward parameters) to see whether the price will continue to go down to the lower line--which is does in this example in rather dramatic fashion. I'm sure there are also statistics for the likelihood of reaching that lower line, but I'm not sure what the percentage is. If price does get to the lower line, the trade is over, and you should take your profits.
A few pointers:
1) Morge really prefers tick or volume based charts for trading with Andrews Pitchforks, and he has lots of examples to show how they work better than time-based charts.
2) When you can find pitchforks whose lines cross each other, these are considered energy points, and they often act like magnets for price action.
3) There are three types of calculations for Andrews pitchforks:
a) standard
b) Schiff
c) modified Schiff
There's a major difference between (a) and (b), but only a minor difference between (b) and (c).
4) There's alot more to this discipline, including some really elegant explanations of why they work in the first place.
5) For further research, I'd suggest doing a search for Timothy Morge. He has, I think, two websites---one of them is
www.medianline.com. I can't find the other one right now. He's also given many lectures on the CBOT education series, at the MoneyShow, and lots of other places. Check out this link:
http://www.hotcomm.com/virmeetCID_EV...asp?CID=YMDZYQ
On 02/15/06 there's a recorded event that Morge gave. Worth viewing if you're new to pitchforks. He's a very organized speaker. He also spoke on 05/03/06, 08/1606, and 06/26/07--just peruse down the list on that link.
Personally, I listen to him every time he speaks.
6) The tool for drawing pitchforks is found on most charting packages. I'm using Tradestation, but I'm sure most platforms allow you to draw pitchforks. If you REALLY get into them, Morge and friends have created a plug-in for Neoticker which draws the forks for you automatically.
If there are other recorded lectures of Tim Morge, please post them here if you find them (and if they're free).
I'd also be very interested in hearing about other practitioners of pitchforks. The reason I've focussed so much on Tim Morge in this post is because he seems to be the only one who's mastered the use of pitchforks. If anyone knows of other experts who share their knowledge with the trading community, please let us know here at TradersLab.