Learning Trade Forex

Median Line trading was first developed by Dr. Alan H Andrews in the 1960's and his popular indicator known as the Andrews Pitchfork is used by many traders today.
A basic understanding of trend lines and channels will help with using this indicator to trade. The Pitchfork indicator is available on most trading software including Meta Trader.

Dr. Andrews assumed that price action will return to the middle Line or Median line about 80% of the time. Once it reaches the center line it will either break through and head to the outer line then reverse, or it will reverse at the center line and head back to the outer line.The Pitchfork trading indicator is very versatile and can be used in various ways. I am going to look at 2 simple trading strategies.

The Pitchfork uses 3 lines on the chart that represent a farmers pitchfork. The upper and lower lines form channels of support and resistance. The pitchfork is a good indicator for monitoring the overall trend and indentifying smaller trend reversals.

Pitchfork Application.
The first step is to identify an extreme high or low on the chart. The Pitchfork uses 3 points on the chart to plot support and resistance lines. The first point at the extreme peak or trough will be our pivot and we will label this point A. The next 2 peaks and troughs in the market will form the neck line which we will label these points B and C.


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For this trade I have used a 15 Gbp/Usd Chart. I have had a few queries as to why I sometimes use shorter time frames in my examples and the answer is simple, generally the larger the time frame the larger the stop loss and risk. Many new traders cannot afford huge stops that move 100 or 200 pips against them before continuing the trend. This trade is a perfect example of using a tight stop to make a large profit.

First I have Identified the extreme High on the chart and labeled it point A. The market started a downward trend and once we had the first significant pull back I marked that point B and the swing low point C. From point B to C I added a Red line that we will call the neck line. We then draw a trend line from point a to point C which becomes our Trigger Line.

The trigger line is our stop loss and trend reversal point. I have also drawn a black trend line through the lows of the up move and the break of this trend line is the signal to enter the market short at 1.9622.

The Trigger line at 1.9637 + our spread becomes our stop loss for the trade which is 20 pips from our entry. Andrews theory states that price will return to the median line 80% of the time so the center line becomes our obvious 1st target for the trade. If you are only in the market with 1 lot then this is your exit point. 50 pips from entry.

If you are in the market with more than 1 lot then close a 3rd of your position at this point and move your stop loss to your entry point. Now you have banked 50 pips and cannot lose on the trade.

If price breaks through the median line then our next obvious profit target is the bottom support line. Price hit our target and we exited with half of the remaining lots at 1.9508 for another 108 pips on the trade. At this point we can move our stop loss to the median line where we exited the first lot and lock in another 50 pips profit.

Price bounced at the lower Pitchfork support line but never went back to the median line and we exited the trade when price again touched the lower support line and then went back through the down trend line for a 130 pip profit on the last lot running. At worst we would have exited the trade once price retraced back through the median line. With 3 Mini Lots in the market this trade yielded a 288 $ profit for a 90 $ risk

This strategy is most effective in a trending market. I suppose we could use other indicators in conjunction with the Pitchfork but I find that the risk is small enough to withstand the odd failures so when I use it I generally use it on its own. The idea is to trade only in the direction of the trend.

Summary

1. Establish the peak or trough on your chart.
2. Wait for a significant retracement
3. Add points B and C
4. Draw in the Trigger line.
5. Add your current trend line
6. Enter the market at the break of the current trend line.
7. Add your stop loss just above or below the trigger line.
8. Exit 1 st position at the Median line
9. Move stop to entry point
10. Exit second lot at the outer support or resistance.
11. Move stop to the median line.
12. Exit remaining lot at the median line or break of current trendline.