Pitchfork tool trading is a useful trading tool for both intraday and long-term traders. Using a pitchfork helps traders identify different types of trading channels, which helps them predict whether a trend is likely to continue in its current direction or revert to the center median.
Price action trading involves more than looking at an indicator or using a specific drawing tool. To become a successful price action trader, you need to familiarize yourself with basic market principles and develop a comprehensive strategy for evaluating the market. However, pitchfork-based trading strategies can still be extremely useful, especially if you know how to draw them properly.
Currently, there are many different types of pitchforks used by traders all around the world. Two of the most common pitchforks you’ll find are the Andrews Pitchfork (the standard pitchfork) and the Schiff pitchfork. While the differences between how these pitchforks are constructed and applied are subtle, it is still important to recognize them.
This article answers some of the most pressing questions about using pitchforks while trading, including the basics of pitchfork trading and explaining the differences between these pitchforks. By understanding pitchfork trading and how traders gain valuable insight from these trades, you can leverage unique drawing tools to improve trading outcomes.
What is the Andrews (Standard) Pitchfork?
Above: Alan H. Andrews, the developer of the Andrews Pitchfork, was an important investment theorist. (Photo: Andrews-lines.com)
The Andrews Pitchfork trading strategy, developed by Alan H. Andrews in the mid-1900s, is a three-line pitchfork designed to help traders identify support and resistance. The middle line of the Andrews pitchfork is known as the median line, and whether the price trends above or below this median line determines support and resistance.
Above: Pitchfork trading can help traders identify an asset’s probable price range.
Andrews claimed that about 80 percent (4 out of 5) of all price movements exist within the range created by the pitchfork, with the remaining 20 percent occurring outside this range, where price action tends to be a bit more unpredictable. The chart helps traders identify when a new outside force (such as a sudden change in demand) causes a new price trend. When currencies are more likely to be mispriced, the transitional period between trends creates unique trading opportunities.
To utilize the Andrews Pitchfork, traders must identify the high or low from recent activity, known as the Pivot Point (usually marked as Point A). The Pivot Point functions as the median line’s origin point. After that, you can plot points B and C using the high and low points following Point A. When combined, these three points create a functional “pitchfork” that can project near-term price movements.
What are the Benefits of Using Pitchforks while Trading?
Pitchforks are a popular tool for technical analysis these days, and both novice and experienced traders use them. In general, the most apparent benefit of using pitchforks is that they illustrate the price range. In the case of the Andrews Pitchfork, these ranges contain 80 percent of activity, -, giving traders an opportunity to enter or exit the trade as prices near the edge of the channel.
Pitchforks also help traders determine when something fundamentally changes within the market. There are often brief periods following these changes where traders can capture the market’s mispricing and earn a short-term profit. While pitchforks, like all categories of technical indicators, do not eliminate trading risks, they can make price action trading within speculative markets more predictable.
What is the Schiff Pitchfork? How is it Different from the Andrews Pitchfork?
Jerome Schiff, a New York-based trader, was an admirer of the Andrews Pitchfork but had a few key objections to how this pitchfork worked. After using the Andrews (standard) Pitchfork for years, Schiff concluded that it was too steep during weak market trends. In response, Schiff sought a viable alternative.
The Schiff Pitchfork is similar to the Andrews Pitchfork, but instead of plotting points B and C at turning points, these points are plotted halfway between the point of origin and the turning point.
Above: Example Image of Schiff Pitchfork (Photo Courtesy of TradingView)
The trend is considered “active” as long as the price stays within these three lines. The shape of a Schiff Pitchfork is similar to that of an Andrews Pitchfork, but the Schiff pitchfork is narrower and less likely to contain sharp angles. In this way, many price action traders consider the Schiff Pitchfork to be a more “zoned in” version of the standard Andrews alternative. Both pitchforks are still widely used by traders, often in conjunction with one another.
Should I Use the Andrews Pitchfork or Schiff Pitchfork while Trading?
The Andrews Pitchfork and the Schiff Pitchfork are both beneficial for traders, particularly forex traders. Still, these are just two of the many variants of pitchforks you might find price action traders using.
Generally speaking, the Schiff Pitchfork’s precision makes it more useful for trading during shallower price trends. If price movements are contained (and this will still require some judgment), making trades at both ends of the apparent price channel should be profitable. If the price trend is more dramatic and more likely to be a short-term trend, the original Andrews Pitchfork will be more likely to capture price movements.
Most of the time, the Andrews and Schiff Pitchforks lead to the same conclusions- it is either time to buy or time to sell. When this is the case, you can trade with a greater sense of confidence.
However, when there is a shock to the market (something we saw a lot of in 2020), these pitchforks may contradict each other. When there is a contradiction, this means that a fundamental price change might be underway. If you are a risk-tolerant trader, this indicates the potential time to open a new position. If you are a risk-averse trader, you might want to hold. Regardless, using both pitchforks in tangent can create a complementary approach to the market.
Above: Precision Pitchfork Trading: Are you using the right pitchfork?
Pitchforks help illustrate price movements, and traders can use them in various speculative markets. Both the Andrews Pitchfork and the Schiff Pitchfork are popular among price action traders, indicating unique opportunities for earning a profit. By taking the time to better understand how these useful indicators function, you can add another valuable tool to your current trading strategy.
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