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Pitchfork Angles Interpretation
This technique will require your patient study. It will not take months to learn though if you practice with it each trading day, no more than an hour a day is required. Please start with historical data, drawing Pitchfork Angles as described in the drawing section,and occasionally re-reading this section. Then spend a few weeks (days if you're a day-trader) paper-trading it with new or real-time data. Since I firmly believe this technique can elevate you to master trader status, consider writing notes on what you find with your backtesting. This process of note taking your observations in your own words has a wonderful effect on speeding the learning process and gaining a sense of ownership of the knowledge.
Pitchfork Angles provides the following trading information:
· accurate forecasted trend-changes
· excellent support and resistance levels
· stop-loss levels
· profit objective levels
The blue trendlines moved in MetaStock (this means creating a trendline, then creating a parallel trendline, then dragging that parallel trendline with your mouse to a new location), or the Action-Reaction lines created in FT/GT are identical to each other. These are the Angles and in the below interpretations I'll just call them"Angles". The brown lines below are the Pitchfork (PF).
The first thing to notice is that where an Angle intersects a PF line you have a trend-change point:
· it's strongest if price is very near the intersect (as in 2, 3,and 5 below)
· it's acceptable if price is within the same channel as the intersect as in 4 below
· you ignore it if price is in another channel, as in the last Angle-PF intersect to the right of 4
Next, notice that price tends to move at the slope of the Angles. And it tends to move to the next higher or lower PF line. This provides you with short-term profit objectives. A violation of the PF line opposite your trade provides you with an initial stop loss.
Below we also have a Dollar Index daily (I use it for Dollar Index futures and the EurUsd Forex pair). The price activity is a few weeks before the above charts activity. It shows this technique can be used on short swift swings. The red circle shows the intersect of both Angles with the middle PF line, which picked the top of the swing. Note the lower dashed blue line.
The below chart is a few days after the above chart, and just before the top chart. I'm trying to show you can step thru market data continuously, as long as the market doesn't go flat for weeks. For clarity I'm just showing the angle that was sourced from the"1" to "3" trendline. Note that the first intersect of the angle (red circle) picked the bottom of the swing nicely. Note the original trendline, shown as a dashed blue line, and market activity around it.
Below we've moved forward a few weeks in the Daily Dollar Index chart. The turning-points and support-resistance are obvious. A new point is that at "5", with price rising and extending above a falling pitchfork - that's when you know to redraw.
Below I'm using a chart from FT/GT. It looks more complicated, but the only addition is in the PF lines,which now have expansion lines on either side of the original PF lines. This isa 30-minute Dollar Index chart. Note the accuracy of the red-circled intersects. And now please spend a few moments observing how you would use the PF lines for profit objectives in short-term swing-trades. Finally, along the bottom right, you can see the PF Expansion lines are effective support-resistance levels, and can also be used with Angle intersects provided price is nearby.
The below chart is 2 days forward on the 30-minute Dollar Index chart. The first red circled intersect got price from its lows to the middle PF line. The second red-circled intersect acted to accelerate price rather than reverse it. The last red-circled intersect changed trend also, but not as a reversal - price went flat. This points out that trend-changes are not always reversals. Up or down to sideways is a trend change, and a slight rise changing to a rapid acceleration is also a trend change. Fortunately, more than half the time a trend change is a price reversal. Hint: when you see that after point "3"price is not moving at the speed of any of the Angles and is hugging PF lines instead, the profit opportunities are fewer.
Below is the SP500 Index,30-minute chart. The first red-circled intersect timed the start of a swing,but price never reached the upper PF line. As seen below if it falls below the rising angle it's time to abandon the initial profit objective. The second circled intersect worked well. This chart shows very choppy volatility, yet the PitchFork Angles technique gives a few trades - and the Angle lines do show valid (maybe even amazing) support-resistance levels inside this choppy market activity.
The below chart is using the same price activity as the above chart, but different PF Angles are used. I just circled the first intersect, I'll let you visually inspect the others.Remember, ideally price should be in the same channel as the intersect of Angle and PF line. Then take a few minutes to review the support-resistance given by the blue Angle lines. Hint: if the PF is falling and price is rising above it, use the initial trendline from "1" to "3" (and vice-versa if PF is rising and price falling below it).
Below we're moving forward a couple of days in the SP Index 30-minute chart. The first couple of Angle - PF intersects look very good. The second one is using a PF Expansion line. This brings us to a very important point. The last 3 charts were of the same time-period in the SP. Don't draw all three PF-Angles in the same chart! FT/GT allows multiple same time-frame charts to be opened simultaneously, and in MetaStock you create a layout with several same timeframe or different timeframe charts of the same market. Expand the chart and/or zoom as needed. As you can see from the preceding three examples, you can pick just about every trend-change in a market, but you'll have to draw several PF-Angles to do it.
Below is a 10-minute chart of the SP Index. The red-circled intersects worked fine. Hint: A clue is that shortly after price left "3" it first moved at the speed of the falling Angle line, then at the speed of the rising angle line below it, not at the speed of the PF lines. This tells me that price will respond to the Angle-PF intersects and the PF lines can be used for as profit objectives, and the angle lines can be used as dynamic support resistance lines.
I'm hoping this section showed you a vision of possibilities for your future trading. It takes practice to master this technique and also there's the extra work involved in plotting several of these for the same market on different charts. But is there a better trading technique?
Summary
· Angle intersects to PF lines are trend change points, the closer price is to the intersect the better
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· Profit objectives are the next PF line in the direction of your trade (or use a trailing stop)
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· The initial stop-loss is the opposite PF line, or (using going long as an example) the lower Angle line if price is just below the PF line at the start of a trade
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· Observe price as it moves within the PF - if price is accelerating at the same rate as one of the Angle lines it means the technique will work well
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· If price is hugging PF lines and not accelerating at the speed of angles lines, the techniques may not work as well
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· Pivots formed within a few ticks of PF lines or Angle lines are tradable! Especially by experienced swing-traders, if you're not one, then I give a simple technique in the next section
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· PF Angles is weak in timeframes under 10-minutes due to"market noise" (large traders exiting trades or getting into long-term trades, stop running, market-makers adjusting their inventory, etc).This noise creates pivots that don't really reflect market geometry in those short timeframes
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· results are improved dramatically when you draw several of these PF-Angles on different pivots for the same market over the same time periods; Note: often you'll be in a profitable swing-trade from one PF-Angle setup and an Angle-PF intersect from another chart (using different pivots) will tell you to take profits and change direction for the next profitable trade. Now that's trading mastery!
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