Fun With PitchForks

[hwsteele]

Ladies and gentle-mens of all ages...
Step right up...Step right up here and come along with me as we have some fun with PitchForks!

That's right folks take a ride on a PitchFork, not quite a broom but a little bit better to use to figure out witch way the market may go!

Come along with me, all it cost is a little of your time!

Come one come all, swingers or scalpers, it simply does not matter...Any one can ride!

 

[hwsteele]

In the next few posts I will give examples of how I use the PitchFork on the charts.
I do not set them up quite like "normal".
I also have some rules that go along with setting them up that I will explain as well.




The above is a naked chart

 

[hwsteele]

The chart below is the same one with a couple of "classic" PitchFork examples on it.

 

[hwsteele]

The basic idea behind the classic Andrews PitchFork is to find a nice clean 1-2-3 formation and then use it as points 1-2-3 of the PitchFork.
The median line that is created by drawing a line from swing number "1" strait through the middle of the distance between swing number "2" and "3" is said to be your target.
The price is supposedly about 80% likely to come back and touch the median line after the third original swing.

The issues that I tended to have when using the PitchFork were knowing which swings to use and when the third swing was done for sure.
Also, some of the forks that were drawn were just not useful either because the median line was not far enough to make a good target...
OR
The fork was VERY skewed away from price and it was unrealistic that price would ever make it to the median line.

So I started to use the following rules to help with some of the issues.

 

[hwsteele]

To start with I don't put the PitchFork on swings 1-2-3. I use swings 1-4-5.
As In I find 5 swings and put the first part of the PitchFork on swing number 1 and then the second part of the fork I place on swing number 4.
The third and final part of the fork I place on swing number 5.

Example:
In this example the red PitchFork is a "classic" while the blue one is a "5 swing fork".

 

[hwsteele]

This post will explain the rules that I use with the "5 swing forks".

1: The first swing can be any swing high or low.
2: The second swing is the next swing.
3: The third swing is the next swing after the second swing.
4: The fourth swing is the next swing after the third one.
If the 3rd swing does not move past the price level of the 1st swing then the 4th
swing must move past the price level of the 2nd swing.
5: The fifth swing is the next swing after the fourth swing.
The 5th swing must move at least 88% of the way back to the price level of swing
number 3.

That's all of the rules we will look at right now.
There are a few more that I use but we will work on these first.

 

[hwsteele]

If we look at the chart with the "5 swing fork" again we will see that it does not follow all of the rules as listed so far.
If you will notice the 5th swing does not make it back up to the level of the 3rd swing.
The 88% line is circled in red on this chart.

As such this is not a valid 5 swing fork.

 

[hwsteele]

Since the market price did not make it back around the 3rd swing level we wait longer for this 5 swing fork to mature.
If you look at the chart again you will see that the price drops below the level of swing number 4 after the last swing failed to qualify as a good 5th swing.

So we move swing number 4 and 5.

Every time the market fails to make a "good" 5th swing and the market drops lower (at least lower in this instance) you need to move swing number 4 to the lowest low.

 

[hwsteele]

Now if you look back at swings number 2 and 3 they look disproportionate when compared to the new swing 4 and our current 5.

As a result we will move swings 2 and 3 to a more logical place as follows:

Once the relabeling is done notice that our new 5th swing is just inside the 88% line and we can call it a good 5th swing.

 

[hwsteele]

Now at first it may seem like there is a lot of changing of the fork going on and there is.
The thing to remember is you will not enter a trade based on the 5 swing fork until the 5th swing is at least 88% retraced back into the price area of the 3rd swing.
Even on a five minute chart you will have way more time than you need to make any adjustments to make a good trade.

 

[ritzn75]

Very informative...

It will be great if you can give recent examples, so that it will be easy to relate to it.

Keep up the good work..

 

[wackypete2]

Interesting stuff

Peter

 

[hwsteele]

Using the very next swing after the old examples 1st swing we will make a new 5 swing fork.

Now at this point the question becomes how do we know when to enter the trade from swing five?
In other words how do we know that the fifth swing is finally over?

 

[hwsteele]

Very informative...

It will be great if you can give recent examples, so that it will be easy to relate to it.

Keep up the good work..

After I get the explanations out of the way I will start giving more up to date examples and then some live stuff too.

 

[hwsteele]

To help give that answer I use a second smaller fork.
I call it the "sub-fork" as it will be roughly half the size of the first or main fork.
The way I draw the sub fork you may think that it is just a 1/2 division of the bottom or top channel but if you look at it closely you will notice that the sub fork is almost always skewed from what that 1/4 channel would be if you had just drawn that out.

Before I show you a picture of the sub-fork I will give the rules for drawing it.

1: Swing one of the sub fork is the same as swing one of the main fork.
2: Swing two of the sub fork is where the median line crosses price between swings
four and five of the main fork.
3: Swing three is the same point as swing five on the main fork.

 

[hwsteele]

On this next chart the main fork is in blue and the sub fork is in red.

First thing to notice is how the channels on the sub fork are skewed from what the 1/2 division line would have been of the main forks lower channel.

The second thing to notice is that I have drawn the channels with the low of the FIRST candle that made it past the 88% level of swing 3.

At this point on the chart we would not know that the next couple of candles would move the 5th swing lower.
SO
We draw our main fork using that low and then we draw our sub fork with that as our low.

The last thing to look at now is the candle that has been circled.
The way the market played out was basically as follows:
The candle that is market as our current 5th swing low made the bottom and then traded up before it closed. The next candle traded up just a little and then down to its bottom and then back up to its close.

Now if we look where this little inside candle is compared to the median line of our sub-fork we see that the top of the little candle is right at the line.
This give some indication that the market may trade lower because the pull backs that happen to the market when it is moving from swing four to swing five (of the main fork) like to stop at this sub-fork median line.

 

[hwsteele]

All right folks that's it for now I have to get ready to go to my daughters school play.
More to come...

 

[wackypete2]

Good Stuff, hw, thanks for posting!

Peter

 

[hwsteele]

This is the current DAILY chart of the EUR-USD with main and sub forks added.

As per the rules 1 can be any swing.
2 is a low which means that the market will be moving DOWN from swing 5.
3 is not past swing 1 in price so swing 4 has to be past 2.
4 IS past swing 2 in price so swing 3 is fine.
5 is currently well past swing 3 so it is a valid 5th swing.

Every thing looks good for the main fork.

Notice the candles that are circled that are resting on the bottom line of the sub fork.
At this point on the daily chart price is consolidating and may make a move higher.
On the other hand price may just follow the line a little and then make it all the way to the median line of the main fork.

IT does look good for price to get all the way to the main forks median line at this point. If price makes it back up a little past the median line of the sub fork then the next move that comes after that will most likely travel in the same direction for a while.

 

[hwsteele]

Now looking at the current hour chart for the EUR-USD we have a valid 5 swing fork with a sub-fork.

Notice how price is now out side of the main fork and right at the top line of the sub fork.
It looks like we may see a higher 5th swing for the main fork at this point. Looking at the daily chart we see this would be no surprise at this point.
Keep in mind that the price is closer to the median line in the main fork of the daily chart than it is for the top line, also on both charts we have been having lower tops AND bottoms so when price does make a move it should be a nice one.