Saturday, September 17, 2011
Median Line System for Trading
The method of trading with Median Lines,also called as Andrews pitchfork has been called as one of the leading indicators which can be used to predict high probability price targets .Combining it with trading rules / money management the method can be used as a good system.It can be used in all time frames, and gives very good entries and exits for positional trades.
The method is suitable for traders who prefer to use charts for their technical analysis for calculating their levels.It's basically a VISUAL method with price patterns against systems which use Numbers / ratios for finetuning levels.
Median Lines can be used in combination with Fibonacci ratios very effectively for trade setups.
I have learnt about this interesting system over the years with information on the internet and trading with the concepts and setups which I have evolved from the knowledge.The system performs well as in any other system only when we trade with rules , stoploss mechanism and money management.
Let me move on to the basic concepts..
Median line studies utilizes the concepts of support, resistance, and retracements .
Median Line method also called as Andrew's Pitchfork was developed by Alan H.Andrews.
Andrews' Pitchfork is a trend channel tool consisting of three lines.
The lines formed can help predict channels of support and resistance in a trending market.There is a median trendline in the center with two parallel equidistant trendlines on either side. These lines are drawn by selecting three points, usually based on reaction highs or lows moving from left to right on the chart. As with normal trendlines and channels, the outside trendlines mark potential support and resistance areas. A trend remains in place as long as the Pitchfork channel holds. Reversals occur when prices break out of a Pitchfork channel.
How to draw Median Lines
1.Identify a significant ( high or Low) reversal point- this becomes Point A.
2. Draw a line from this point to the next significant reversal point at Point B.
3.Then plot a line from a significant point early in the trend ( Point C) bisecting the first line halfway between A & B.This is the Median Line.
4.Now draw two lines parallel to the Median line, one starting from Pt A and other from Pt B.
5.These form the Median line set / channels or Andrews Pitchfork.
How to draw the charts
1.There are many stock charting programs which have Andrews pitchfork tool.
2.Web based charts programs like Icharts.in have line tools where the APF line can be drawn and saved.
2.Copy charts and paste them in Paint program and draw the lines.( But this is a time consuming process for short term trades.However can be used for longterm trades /positional trades.