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ANDREWS PITCH-FORK


Mini-Median Line Pitchfork Identifies Trend Reversal

01/07/10 08:42:09 AM
by Alan R. Northam

In addition to developing the pitchfork formation, Alan Hall Andrews also developed a lesser-known pitchfork known as the mini-median line pitchfork. The mini-median line was Andrews' favorite, as it generated timely buy and sell signals in addition to being indispensable whenever a trend reversal was expected. Here's how Andrews used the mini-median line to identify the area in which a trend reversal could occur.

Security:   !SPX
Position:   N/A

When Alan Hall Andrews picked up a stock chart to study, the first thing he did was to identify all the significant pivot points. In total, Andrews discovered that five significant pivot points developed in a trend before coming to an end. He would then use these pivot points to draw his pitchfork or other studies to analyze the stock chart. Once he had identified the first four significant pivot points, he would draw a mini-median line pitchfork to help identify the area in which a final fifth significant pivot point would develop. Andrews used the mini-median line pitchfork to identify buy and sell signals. He also said that it not only generated timely buy and sell signals, it also was an indispensable tool to use whenever a trend reversal was expected.

Drawing a mini-median line pitchfork is similar to drawing a normal pitchfork, except alternate high and low closing price pivots are used instead of high and low prices. Figure 1 shows how a mini-median line pitchfork is drawn. The first thing is to identify the first three significant pivot points using closing prices. Then a pitchfork is drawn, using these first three significant pivot points. Then any additional pivot points are identified. Figure 1 shows that four significant pivot points have been identified.

After drawing the mini-median line pitchfork, Andrews would look for price to rise to the mini-median line following pivot point P4. He understood that this mini-median line represented that area in which the final pivot P5 would develop. Andrews also understood that price could travel along this mini-median line for several days before P5 actually developed.

One tool Andrews would use to identify when P5 had occurred was to look for price to form two consecutive bars with lower highs and lower lows. In effect, Andrews looked for two-day reversal bars to help him determine when a significant pivot point was in place (candlestick reversal patterns could also be used). The important point is that Andrews would first wait for price to reach the mini-median line and then start looking for a reversal pattern to occur. As a caveat to the expectation price would rise to the mini-median line before a reversal pattern developed, Andrews knew that this would occur approximately 80% of the time but also knew that 20% of the time price would never reach the mini-median line. For those situations in which price never reached the mini-median line, Andrews would use other tools he had developed.


FIGURE 1: S&P 500, DAILY. This charts the mini-median line pitchfork. Note that it is drawn using closing prices instead of the normal high and low prices used when drawing a regular Andrews pitchfork. Note also that P5 is labeled in gray, signifying that this pivot point is expected but has not yet developed.
Graphic provided by: AmiBroker.com.
 
In conclusion, once an area in which P5, the final significant pivot point, developed, Andrews would then draw a mini-median line pitchfork because it was an indispensable tool to use whenever a trend reversal was anticipated. He would then monitor price and knew that once it reached the mini-median line, the price reached the area in which a trend reversal could occur. Once price reached the mini-median line, Andrews would then start to look for a reversal signal to identify that the current trend had ended and a reversal in trend had begun.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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