Today’s article is about the Andrews Pitchfork trading strategy and how we use it in our trading. The Pitchfork trading system in an old forgotten trading technique that projects potential support and resistance lines.
Our team at Trading Strategy Guides already covered the basics of support and resistance. You can read more about it here, Support and Resistance Zones – Road to Successful Trading. The Andrews Pitchfork forex strategy gives the S/R topic a new dynamic dimension.
The Pitchfork trading strategies PDF can be applied to all time frames, and generally to every kind of market. No matter your trading style or preferred time frame, you’re covered. Also, read the simple way of trading multiple time frames in Forex.
Before we dive into the Andrews Pitchfork trading system, let's define what Andrews Pitchfork is. We will review how to profit from this amazing technical indicator:
What is Andrews Pitchfork?
The Andrews Pitchfork trading strategy is a popular trading tool that encompasses three parallel lines. Or a maximum of five parallel lines that can be utilized to find sharp trading opportunities.
The middle line is called the median line. It is followed by two consecutive resistance trendlines above the median line, and two consecutive support trendlines below the median line.
The general theory behind the Pitchfork trading system is that if we get through the median trend line, about 80% of the time it should retest the top of the Andrews Pitchfork channel. Conversely, if we break below the median trend line, we should retest the bottom of the Andrews Pitchfork channel.
When using the Andrews Pitchfork trading system, we can observe the price tends to gravitate toward the median line. This makes the median line to serve as both support and resistance. In other words, it can be seen as a regression line.
Basically, the Pitchfork trading system combines three of the most powerful trading strategies into one simple method, as follows:
- Support and Resistance system.
- Trend Following system (Check out our popular trend-following strategy How to Profit from Trading Pullbacks).
- Reversion to the mean system.
Before we move forward, we must define what technical indicator we need for the Andrews Pitchfork trading course and how to use it:
The Andrews Pitchfork Trading Indicator
It’s easy to identify the required indicator to draw the Pitchfork trendlines because it has the same name. Most trading platforms and charting packages (MT4, TradingView, etc.) have the Pitchfork indicator built into their indicator libraries.
The Pitchfork trading indicator requires being attached to three pivots.
A pivot is simply a swing high or swing low from where the price had a significant reaction.
Effectively, we use the three pivots to draw the Pitchfork trendlines. So first, you need to identify the early stage of a trend, locate the pivot points and mark them so you can easily draw the Pitchfork trendlines through them.
Note* There are multiple ways to draw the Andrews Pitchfork lines. These are just our favorite techniques.
The selected pivot points are somewhat subjective. That’s the reason why the Pitchfork trading system gives you the flexibility to test different trading scenarios.
Now, let’s see how you can effectively trade with the Andrews Pitchfork trading strategy and how to make some profits. Also, be sure to check out our best list of trading strategies.
The Andrews Pitchfork Trading Strategy
Our team at Trading Strategy Guides likes to use the Pitchfork trading system to identify a change in market behavior and make a profit from it. It’s important to understand what Andrews Pitchfork is and what pivots to use. This will give us more confidence later when taking the trades based on the Pitchfork trading system.
Moving forward, we present the buy-side rules of the Andrews Pitchfork trading Indicator.
Step #1: Identify the Three Pivot Points necessary to Draw the Pitchfork lines.
The first thing you need to establish for the Pitchfork trading system is to identify three pivot points necessary to draw the Pitchfork lines. For more insights into this topic, check out the what is Andrews Pitchfork section.
Since we’re looking for buying opportunities, we need to identify a series of rising pivot points.
Now, it’s time to focus on the Pitchfork indicator. This brings us to the next step of our Andrews Pitchfork trading strategy.
Step #2: Apply the Pitchfork indicator starting from Pivot 1 and move through Pivot 2 and Pivot 3.
Now, use the three pivots identified and draw the Pitchfork trading system lines by connecting the pivots together. Start from Pivot 1 and move forward through Pivot 2 and Pivot 3.
During this stage, you’ll be plotting the Pitchfork trading system lines. This will map the most important dynamic support and resistance levels. Once you've done this correctly you will see a rectangle or pitchfork formed.
Read more about charting with rectangle patterns here.
Next, we're going to build our trades around these Pitchfork lines:
Step #3: Buy at the market at the first retest of the lower Pitchfork support trendline.
With the Andrews Pitchfork trading strategy, the price should be contained inside the Pitchfork parallel channel. In this regard, if we’re looking for buying opportunities, assume the lower Pitchfork support trendline to hold the price for a bounce.
We recommend buying when the lower Pitchfork support trendline is tested.
The next logical thing we need to establish for the Andrews Pitchfork trading strategy is where to take profits.
Step #4: Take Partial Profit at the Median Line, and Take Profit 2 at the upper Pitchfork Resistance trendline.
The Pitchfork trading system gives you the flexibility to manage your trades in many different ways.
Our mantra is, “Keep it Simple, Stupid.” In this regard, since the core principle of the Andrews Pitchfork trendline is that price tends to gravitate towards the median line. It's the logical place to take some profits off the table.
We only take partial profits on the median line because we also want to maximize our profits. This will give the market a chance to retest the upper Pitchfork resistance trendline.
With the Andrews Pitchfork trading system, we’re trading in the direction of the trend so the expectation is to see the price moving higher and eventually retest the upper Pitchfork limits.
Note: After TP1 was reached, move your SL at BE. We accomplish two things by doing this. First, we make sure that we accumulate profits. And secondly, if the markets reverse, make sure you stopped at BE and don’t lose any money.
The next important thing we need to establish is where to place your protective stop loss.
Step #5: Place the Stop Loss below the lower Pitchfork trendline and add a buffer of 20-30 pips.
The recommended place to hide our protective stop loss is by adding a buffer of 20 – 30 pips below the lower Pitchfork trendline.
Normally, in an uptrend, the support Pitchfork trendline should hold the price above. However, in order to protect ourselves from possible false breakouts, we’ve added a buffer of around 20-30 pips to our protective stop loss.
Note* In a strong uptrend, it’s quite normal for the price to break and trade above the resistance Pitchfork trendline. Inversely, in a strong downtrend, it’s quite normal for the price to break and trade below the support Pitchfork trendline.
Now, instead of focusing and limiting ourselves to one trading approach, we’re going to explore different trading strategies using the Pitchfork trading system.
Note** The above was an example of a BUY trade using the Andrews Pitchfork trading strategy. In the figure below you can see an actual SELL trade example, using the price failure rule.
Andrews Pitchfork Trading Strategy Conclusion
There are many Andrews Pitchfork trading strategies that can be built around the Pitchfork trading system lines. They can all be simply derived from the Pitchfork’s trading rules. In order to use this system, you need to understand what Andrews Pitchfork is. You can also read our best short-term trading strategy.
Andrews Pitchfork is simple to understand because, according to the Pitchfork trading system principles, you only need to know these three rules:
- Price tends to gravitate towards the median line.
- When price breaks the median line there is a high chance it will pull back to retest again the median line.
- When price breaks the Pitchfork channel on the opposite side of the channel direction, there is a shift in market sentiment and the trend can reverse.
Thank you for reading!
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