Andrews' Pitchfork (sometimes referred to as "median line studies") is available

on numerous programs and charting packages and widely recognized by novice and
experienced traders. Comparable to run-of-the-mill support and resistance lines,
the application offers two formidable support/resistance lines with a middle line
that can serve as support/resistance or as a pseudo-regression line.

Andrews believed that market price action would gravitate toward the median line
80% of the time, with wild fluctuations or changes in sentiment accounting for the
remaining 20%. As a result, the overall longer-term trend will (in theory) remain
intact, regardless of the smaller fluctuations.

If sentiment changes and supply and demand forces shift, prices will stray,
creating a new trend. It is these situations that can create significant profit
opportunities in the currency markets. A trader can increase the accuracy of these
trades by using Andrews' Pitchfork in combination with other technical indicators.
Applying Andrews' Pitchfork

In order to apply Andrews' Pitchfork, the trader must first identify a high or low
that has previously occurred on the chart. The first point, or pivot, will be drawn
at this peak or trough and labeled as point A (as shown in Figure 1).

Once the pivot has been chosen, the trader must identify both a peak and a trough
to the right of the first pivot. This will most likely be a correction in the
opposite direction of the previous move higher or lower. In Figure 1, the minor
correction off of the trough (point A) will serve us well as we establish both
points B and C.

Once these points have been isolated, the application can be placed. The handle of
the formation begins with the pivot point (point A) and serves as the median line.
The two prongs, formed by the following peak and trough pair (points B and C),
serve as the support and resistance of the trend.

Application of Andrews' Pitchfork to a chart showing the price action of the

EUR/USD. The pivot point (A) has been drawn at a previously occurring trough, and
points B and C have been established to the right of the pivot. The line drawn from
point A is the median line, while the two "prongs" serve as support and resistance.

When the pitchfork is applied, the trader can either trade within the channel or
isolate breakouts to the upside or downside of the channel. In Figure 2, you can
see that the price action works well serving as support and resistance where
traders can enter off of bottoms (point E) and sell from tops (point D) as the
price will gravitate towards the median. As always, the accuracy of the trade
improves when confirmation is sought. A basic price oscillator will be just enough
to add to the overall trade.

Application of the pitchfork on an uptrending GBP/USD. Notice the multiple

opportunities offered to the trader inside and outside the boundaries.

Additionally, the trader can initiate positions on breaks of the support and
resistance. Two examples are presented at points F and G. Here, the market
sentiment shifted, creating price action that strayed from the median line and
broke through the channel trendlines. As the price action attempts to fall back
into the median area, the trader can capture the windfall. However, as with any
trade, sound money management and confirmation must play important roles in
execution.
Trading Within Andrews' Pitchfork Lines

Let's take a look at how a trader might profit from trading within the lines.
Figure 3 is a good example, as it shows us that the price action in the EUR/CAD
currency pair has bounced off of the median line and has risen to the top
resistance of the pitchfork (point A1). Zooming in a little closer in Figure 4, we
see a textbook evening star formation. Here, the once-rising buying momentum has
started to disappear, forming the doji, or cross-like, formation right below the
upper prong. When we apply a stochastic oscillator, we see a cross below the signal
line, which confirms downside momentum.

The trader would do well to place the entry at point X (Figure 4), slightly below
the close of the third candle when taking these indications into consideration. The
entry would be executed on the downward momentum as the price action once again
gravitates towards the median line, in practice with sound money management (and
including an appropriate stop loss). Even better, the trader could make close to
1000 pips over the life of the trade.

Another great setup in the EUR/CAD cross currency. Here we see a prime example of
an "inside the line" profit opportunity as price action approaches the 1.5000
figure.

A closer look at the opportunity reveals textbook technical formations that aid the
entry. Here, the trader can confirm the trade with the downward crossover in the
stochastic and the evening star formation.
Trading Outside Andrews' Pitchfork Lines

Although trading outside the lines occurs less frequently than within, they can
lead to extended runs of profit. However, they can be trickier to attempt. The
assumption here is that the price action will gravitate back towards the median,
similar to wayward price action within the lines. However, it is possible that the
market has decided to shift its direction. Therefore, the break outside may be a
new trend forming. To avoid a catastrophic loss, simple parameters are added and
placed in order to capture the retracements into the channel and, at the same time,
filter out adverse movements that ultimately result in traders closing their
positions too early.

we see that the price action at point A offers such an opportunity. The chart shows
that the EUR/USD price action has broken through support in the first week of
April. Once the break has been identified, we isolate and zoom in to obtain a
better perspective.