By ForexBonusLabs

Any trading platform commercially available is offering the Pitchfork as a technical tool and it is useful in finding important support/resistance areas as well as defining a rising/falling angle of a trend.

A Pitchfork it is formed out of three important elements: the median line, the upper median line and the lower median line. Out of the three, the median line is by far the most important one and this is the line everybody is looking at. The median line has multiple functions and can be treated in different ways.

Firstly, the median line has a “magnet” like function, meaning price is attracted by it and depending on the angle the Pitchfork forms, the move towards the median line can be quite powerful.

Secondly, it is acting as important support/resistance area for price as, when reached, traders should look for reversal patterns on the smaller time frames (head and shoulders and inversed head and shoulders, rising and falling wedges, double bottoms/tops, etc) because there is a strong tendency for such a thing to happen. The chart below depicts a classical Pitchfork with the three elements mentioned above and showing you how price is attracted to the median line.

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The biggest issue for traders is how to draw the Pitchfork properly, in the sense that the actual implementation to a chart is quite simple (regardless of the trading platform used, a Pitchfork implies three points, so called pivots – P0, P1 and P2 – , and by the time the three points are plotted on any chart, the Pitchfork is projected, with the median line being the line that goes from the P0 pivot and the distance between the upper median line and the lower median line is always equal), but choosing the places to plot the three pivots mentioned above is not that simple.

This is the biggest draw down of the whole Pitchfork theory and the fact that drawing the pivots is so controversial made this subject to be treated intensively for the last decade. However, coupled with other theories, like the Elliott waves theory, the Pitchfork can be successfully used and below it is a concrete example.

Whenever the Elliott wave counts shows the beginning of a correction and the a and b waves are already done, regardless the time frame studied, then drawing a Pitchfork from the end of the previous wave (P0), to the end of wave a (P1) and to the end of wave b (P2) gives the trader an educated guess about the possible end of the c wave to the upside. And, like this article began, the possible end is given by the median line, as this attracts price. The example below shows a classical case for the situation mentioned above.

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The same can be applied when price is ending a fourth type consolidation and in this case the Pitcfork should start from the end of the previous third wave of a lower degree (P0), to the end of the third wave of the same degree (P1) and to the end of the fourth wave of the same degree (P2). In this case the possible end of the fifth wave of the same degree is becoming easy to identify as the median line usually points it.

In conclusion, even if controversial because of the fact that the right place to plot the pivots is difficult to choose, when treating in combination with other trading strategies and techniques, the Pitchfork is a powerful tool and this results from the importance of the median line.

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