Alan Andrews is a well-known trader who traded in Forex in the first half of the 20th century. Although he invented his strategy and indicators almost 100 years ago, they are still popular with modern traders. Andrews’ Pitchfork is included in the standard list of tools on the trading platforms.
At first sight, building up and using Andrews’ pitchfork for trading may seem complicated, but once you understand the principle of their construction, you can significantly facilitate the task of making market analysis. So, how to plot Andrews pitchfork? We will talk about this in this article.
Plotting the indicator
Andrew’s pitchfork indicator is constructed on the basis of the last high and low of the price. Therefore, first of all we shall identify these levels. We use older timeframes from one hour or higher. We shall determine three points, as the direction of the indicator will depend on them.
There are two ways of constructing the pitchfork:
- Low — High — Low. In this case the fork will be directed upwards.
- High — Low — High. The fork will be directed downwards.
We shall use the last three levels on the older timeframe and place dots on these points. Then you determine the difference between the highs or lows.
On the above chart, the pitchfork is directed upwards, which means that we had Low-High-Low pattern. The middle line of the pitchfork is the bottom of the price, let’s call it point A. In order to estimate the angle of slope, it is necessary to calculate the difference between the two following points: B and C.
The result is divided by two and added to the level of the dot B. Thus, we have a middle point between two dots. The line A shall cross it. The next two lines are constructed from the initial points, strictly in parallel to the line A.
Now, we have a fork, which we help us to search signals.
In addition to three parallel lines, it is also necessary to determine strong levels, which is quite easy. On the chart we can clearly see the moments when after reaching a certain level, the price repeatedly pulls back from it, as if trying to break down this level.
For convenience, this level can be plotted as a horizontal line. Then, we will start to search signals on the lower timeframes. The chart shows that the horizontal white line and the line C of Andrews’ forks have formed a triangle. This is a signal for opening a buy trade, since if the price goes below the line C of fork, a new indicator should be constructed.
About five points above the white line we will place a pending buy order. If the price breaks down this level, it is likely that it will continue to go up in the channel formed by Andrews’ pitchfork.
This signal to buy is not confirmed or strong, that is why a trader shall pay special attention to placing protective orders, which will help minimize losses.
Stop-loss and Take profit
According to Alan Andrew’s strategy, stop-loss order is placed at point C, or at the level of the last low. However, in our case, it will be more appropriate to place it just below the line C. At the moment of triggering of a pending buy order, we put a vertical line on the candlestick where the position was made. The point of intersection between this line and the lower part of Andrew’s pitchfork will be the level for placing stop-loss order.
Take-profit order is placed in the middle line of the pitchfork. We need to visually prolong the trend line of the price, that is, identify a moment when the price reaches the middle line and place take-profit order at this point.
The main thing is that the number of points before take-profit order shall be twice as many as the number of points to the stop-loss.