Indicator “Andrews’ Pitchfork” For Forex Trading (Part-2)
In the first part we have met Andrews’ Pitchfork as one of the tools we can use in conducting technical analysis for forex trading. Now, in this discussion, we will try to better recognize this one indicator.
Let ‘s just start.
Open a position in the channel
How do you do the analysis using Andrews’ Pitchfork if the price is in the channel?
Let’s just say that you are currently watching gold price movements (EUR / USD). On the chart, you see that the gold price starts to move down and you have also drawn Andrews’ Pitchfork on that chart.
Well, the question that arises then of course is what position should be taken and where?
Do you still remember this advice: “the best position is the one in line with the trend” ? Still? Great.
You have determined the trend that you will use based on Andrews’ Pitchfork as seen in Figure 1, which is down. Thus, the position you should take is SELL.
Let ‘s remember again the basic rules for using Andrews’ Pitchfork:
- Sell when the price is in the upper channel area, the first target is helve, while the farthest target is the bottom channel.
- Buy when the price is in the lower channel area, the first target is helve, while the farthest target is the top channel.
- During downtrend, buy if the upper channel breaks.
- At an uptrend, sell if the bottom channel breaks.
OK, so based on these basic rules, you can try to find short positions when prices move in the upper channel area. The Take Profit (TP) area is in the helve area (median line) as the first target, while the farthest target is in the bottom channel area.
Now let’s look at the continuation of the chart above.
From Figure 2 you can see that the sell area is in the upper channel area and the price then descends to the helve area. In this case, the price did not reach the farthest target, the lower channel area. But that doesn’t matter, because most traders take advantage of the first target, the helve area.
The next question might be: “When the price has reached the upper channel area, how can I know that it’s the right time to open short positions?” For that, you can use the help of other indicators such as stochastic, MACD, CCI or RSI. The concept is, when the price is in the upper channel area, you just need to look for a sell signal confirmation from the additional indicator.
The same thing applies if you want to find long positions when the price is in the lower channel area, it’s just that you need to look for it from the additional indicator is a buy signal.
Open a position outside the channel
What if the price no longer moves within Andrews’ Pitchfork channel?
Actually there are other ways to use it, but this method is rarely used.This method leads to breakout trading (read here about breakout trading) . Well, if you already know breakout trading, you will surely know that if there is a breakout above the resistance or below support, then there is a potential direction of the trend will change. Well, in this case the upper channel area acts as resistance while the lower channel acts as support.
But remember, this is important: a break of support or resistance is indeed an early indication of a change in the direction of the trend, but you must keep in mind whether the breakout is valid or not. What is a valid penetration?
Can you see the breakout that occurred in Figure 3 above? Well, in the example above, if you want to implement a breakout strategy on Andrews’ Pitchfork, you can open long positions when the candlestick that penetrates the upper channel is closed. In other words, you can open long positions after the next candlestick starts.
On the other hand, if at the time Andrews’ Pitchfork moves up and it turns out then the lower channel breaks, then based on the concept of breakout trading , you can open short positions.
But of course you also have to always remember that there is no trading method that is 100% accurate. Therefore, remember to always place a stop-loss, to anticipate if the market does not move according to your wishes.