Stocks & Commodities V. 3:2 (64-65): Median Line Market Analysis by Thomas E.

French

Median Line Market Analysis

by Thomas E. French

The Median Line (ML) method of market analysis was first developed by Professor Alan Hall Andrews,
a Massachusetts Institute of Technology (MIT) engineering graduate. The Median Line technique of
geometric technical analysis is also referred to by some as the Andrews line method. The purpose of a
Median Line is to predict a price point where the market will reverse.
The basic concept behind the method is really simplicity itself, that of action and reaction. Andrews, who
I have worked closely with over the past couple of years studying and applying his methods, credits his
late friend Roger W. Babson (early 1930's) with helping him develop this technique. Babson applied Sir
Isaac Newton's law of physics, that actions and reactions are equal and opposite, to market analysis. From
these conceptual beginnings Andrews evolved his own method of market analysis.
The cornerstone of this entire approach is the Median Line (ML). Before exploring this further we should
define median. The dictionary states median means in the middle or a line that divides into two equal
parts. Charts 1, 2, and 3 graphically depict this concept. The dashed line represents a ML intersecting a
straight line at the point denoted by a circle. Note that regardless of the of the straight line, the ML
intercept represents a point where there exists an equal amount above as well as below the point of
intersection. This is indicated in Chart 1 where AB = BC, in Chart 2 where DE = EF, and in Chart 3
where GH = HI. The point to note in each case is that the ML actually bisects the straight line.
To apply this to market action, we need to define pivot points from which to draw our MLs. A pivot point
is used to denote what Elliott called a wave, some call sections, and yet others call swings. Whatever
your nomenclature, the following graphic representations will solve any confusion. On Chart 4 of the
March 1985 corn chart you will see pivot points that have been labeled using roman numerals, numbers
and letters. It is very important to note the difference in the magnitude of the various pivot points. The
reason for this is that as we draw in our MLs we want to maintain an equality between those pivots that
are of similar sizes. For example, a pivot point that represents the high of the last six months and another
pivot that represents the low of the last eight months renders a more significant ML than one drawn from
pivots that represent a high and a low from the last two weeks of market action. Thus a ML drawn from
point I to a point bisecting a line connecting points II and III is most important, while an ML from point 2
bisecting a 3-4 line is of lesser importance. What we want to look for on our charts are three clearly
delineated pivots points. We shall label these pivots as A, B, and C, and draw our ML such that it passes
though pivot point A and bisects B-C. Examples are given in Charts 5, 6, and 7 to illustrate drawing MLs
in rising, descending, and sidewise markets. In each example, note that the B-C leg is exactly halved by
the ML from A. This indicates that half the market action is above and half the market action is below the
ML. This is the action-reaction concept in actual use.
The mechanics of drawing MLs on a chart are simple once you have your three pivots defined. All that
need be done is to find the exact center point of market swing B-C and bisect it with pivot A. You would
accomplish this by using a straight-edge (I prefer a drafting implement known as a parallel glider) along
the extremes of pivot B and pivot C. The exact midpoint is noted (I make a dot with a pen) and a line is
drawn from pivot A through that dot. When the market reaches the ML, we expect a price reversal and
would either sell or buy as that price was reached.

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Stocks & Commodities V. 3:2 (64-65): Median Line Market Analysis by Thomas E. French

According to Andrews there is an 80% probability that the latest ML will be reached by market action
before prices reverse. I have drawn examples on Chart 8 showing November 1984 Soybeans to illustrate
how this would actually work. Note the pivots I chose were of a similar size and degree and that the MLs
from the larger pivots should indicate the larger price reversals or pivots. Note how the MLs are
constructed and the market action as the ML was reached by prices. The ML of large A bisecting B-C
predicted a top at small B and the ML of small A bisecting B-C called the reversal at D. Try a few of your
own MLs on other markets and see how they work. Remember, there is an 80% probability that the most
recent ML will be reached. That means that there is a 20% probability that market action will not
cooperate with us. I don't believe there is a holy grail.
There are further refinements to Andrews' work and some more rules for its application that I hope to
explore in future articles. This is not a system but rather a method of analysis and as such requires the
user to have or work to get market experience to help in applying this ML concept to market activity.
Thomas E. French is a full time trader in the commodity markets working with Alan Hall Andrews, Ph.
D. publishing a market letter and course of study titled Action-Reaction Method .

Chart 1:

Chart 2:

Figures

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Stocks & Commodities V. 3:2 (64-65): Median Line Market Analysis by Thomas E. French

Chart 3:

Chart 4: Chart by Commodity Research Bureau, 75 Montgomery St., Jersey City. NJ 07302

Figures

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Stocks & Commodities V. 3:2 (64-65): Median Line Market Analysis by Thomas E. French

Chart 5:

Chart 6:

Chart 7:

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Stocks & Commodities V. 3:2 (64-65): Median Line Market Analysis by Thomas E. French

Chart 8:

Figures

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