Pitchforks

Pitchforks

Pitchforks

Pitchforks (sometimes also called Dr. Andrew’s Pitchforks) are a pretty nifty technical analysis tool that can provide you with a lot of very useful information if used correctly. They create a channel through which an asset’s price moves, so it becomes much easier to decide whether you want to buy call or put options. However, there are some things you need to be aware of when using this particular kind of tool and that’s what we will be discussing in the rest of this article. Our experts will show you its main elements and you will see why considerable experience is needed in order to master using pitchforks. But enough with this, let’s get going with the real stuff!

Pitchforks | Pivot points

All pitchforks are based on three pivot points and choosing them can sometimes be a bit tricky. Your first pivot point should be the market’s high or low (depending if we’re talking about a bearish or a bullish situation) and then the next two pivot points should be the ends the next two waves. Now that you have your pivot points set up, the tool will draw three parallel lines through them: the median line, the upper median line and the lower median line. These three lines will then form a channel in which the price will move and you will be able to make a prediction with a fair degree of certainty. Be careful of the expiration date, though, as they can affect your prediction a lot.

Pitchforks | Median lines

So what do these lines have to do with anything? Well, the median line of all pitchforks is the one to which the price gravitates. In other words, it’s as though it has the power to attract the price to itself whenever the price reaches upper or lower median lines. In this respect, these two other lines act as support and resistance levels in a pitchfork. Essentially, you want to trade put options once the price reaches the upper median line or call options when it reaches the lower median line. The trick is in determining pivot points correctly, so that your median lines are as accurate as possible. That’s why you need some experience before using pitchforks because it’s not always easy to determine where to place your pivot points.

Pitchforks | Conclusion

Pitchforks are a technical analysis tool that can provide you with a lot of useful information if you can place the pivot points correctly. That’s why it’s preferable that more experienced traders use them. These pivot points are the starting points of three median lines forming a pitchfork and they will determine all your future actions. Choose them correctly and you have a good chance of success. Of course, don’t think that you are limited to using only this tool – other tools can be combined with it, as well. The important thing is that you get some good information.

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FURTHER READING:

1. Trade Your Way To Financial Freedom (Van K. Tharp, 1998)
2. Technical Analysis Of The Financial Markets: A Comprehensive Guide To Trading Methods And Applications (J. Murphy, 1999)
3. The Intelligent Investor (B. Graham, 1973)
4. The Four Pillars Of Investing: Lessons For Building A Winning Portfolio (W. Bernstein, 2002)
5. Encyclopedia of Chart Patterns (T. Bulkowski, 2005)

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Author: Ben Prescott
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