Today’s video is part 1 of “Andrews Pitchfork Trading: A Great Tool to Make Money in the Stock Market.” Technical analysis is the art and science of reading the charts of stocks rather than looking at a company’s “fundamentals” (earnings, sales, price/earnings ratios, etc.).
If you’re not comfortable only trading a stock based on it’s technical analysis, you can combine technical analysis with fundamental analysis as many traders do.
This first, in a 2-part series, will focus on a technical analysis tool that fits into the category of “market geometry:” Andrews Pitchfork Trading.
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Welcome to this video on Stock Market Trading Tips regarding Andrews Pitchfork Trading. I’m Doctor Barry Burns with Top Dog Trading.
This is part 1 and you can watch any of these in any order. We’re going to show you how to do this with Andrews Pitchforks. So let’s take a look at what that is. It’s a geometry pattern that we use. Go up here, click on Andrews Pitchfork. Obviously your software maybe a little different. This is Ninja Trader.
THE BASICS OF ANDREWS PITCHFORK TRADING
Andrews Pitchfork is a 3 point drawing tool. We go 1, 2 and 3. Now the point of this is we are going from a high, significant high to a lower low and then to the next high.
We’re looking to draw this in the energy of a new trend. A new move. Now it’s going to show us the relative strength of the price action as it continues in that trend. If you can use your imagination a little bit, you can see this is called the handle here. And that’s the handle of the fork. Just think of it is the fork. And the fork is angling down. And then from here you have the sides going out like that and that and then the tines, they are called tines, the fork are going this way.
The primary times we’re looking at are, first of all the middle one is most significant. I got that in black. I’ve got these drawn in different colors. The middle one is black, and then the outer two from that are in a darker blue. As you can see a little thicker.
Ultimately what we would like to see is the market to stay within the boundaries of this line or tine if you will. And this one here. Because what that’s showing is that the market is maintaining the same relative strength as this initial impulse move from there to there and then down again.
WHAT IT’S ALL ABOUT
Remember Andrews Pitchfork Trading is all about the energy of the market. How is this energy continuing? So again our initial 3 point were those 3. That sets up a particular type of energy for the market to go down. And we want it to stay below this line and basically above this line.
Because if it goes below this line, that means the market is probably having a exhaustion pattern.So we get a wave 1 here, stays within that area. Wave 2, stays below that tine. Great. Wave 3 comes right down to the bottom one.
Wave 4 actually comes in here, now here we start to show a little bit of weakness. See that. It comes back up and we are still okay, because it doesn’t go above this one, doesn’t get above that one. This is your final hurrah. Up here is showing a little bit of weakness. And then when it come down, it gets back to the little one, but look it does not come down to that one. So this is the key that we’re watching.
5 wave pattern is what is normal. We are looking for a trend to have 5 waves. And they don’t always have 5 waves. Sometimes they got only 3, other times it will go 7, or 9, or 11. So what we’re doing is we are counting our waves. Let’s say if it will go average of 5 or if it will be an exception to the rule.
PRACTICAL TRADING TIPS
Now we do that by simply looking at the relative strength of the market, relative to the initial impulse move. Here we are good, here oops we broke out above that line, so that’s our first little signal, that oh there is weakness, the strength of this trend is starting to get weaker. Does it get back to this line? Nope, it only goes to that one.
When we’re putting in a wave 5 there, then probably we are going to just go ahead and get out. I would. That’s what I would do when using this Andrews Pitchfork Trading technique. Because right at wave 5, which is average, as far as the length of the trend goes, 5 waves. And it’s getting weaker. It didn’t get down to this line down here, it only got to the middle one. And then it comes back out.
Now if you want to be a little more free flowing with your money management, and you think oh can go further, it can go further down, just gets weaker, doesn’t mean it won’t go down any further. You might want to place your step outside of this line. And definitely outside of that line for sure.
But look how much money you are giving back when you do that. So you’re giving back a lot of potential profits here. You know about $10 in this particular case. And once it breaks out of that, well then we are done. Then this initial energy down has completely changed.
HOW TO START OVER AFTER THE TRADE ENDS
What are we going to do then? Then we’re going to do the exact opposite of what we did before. We are going to take this pitchfork off and we’ll put a new pitchfork up.
Oops got the wrong button there, so we are going to go now, measure it up from there to there and to there. It now measures the movement up.
Look at that, it didn’t go very far, did it? It knows how the market did respond to those zones if you will. And it kind of goes little, climbs up this one but it’s already on the outside, kind of breaks to the outside of it immediately meaning that do not expect a big move to the upside right here. At least not on the same energy. And it just goes outside the zone right away and starts outside the time.
So once that happens, then what I would do is see how the energy just goes sideways then. This was not a strong, this is a strong move. Up here, 1, 2, 3. But that same type of energy doesn’t continue up.
You can actually, if you want to get real creative with it, get a little more advanced for you. You can actually then go to like that, low over there and say okay, well this is the energy that it established, and it did. And now here is our 3 primary tines. And it goes up, it stays in there for a wave 3 and then it fails. Comes all the way down and it’s outside.
What happens when it goes outside? Totally chaos. So does not continue in that same direction. Okay so that’s the idea.
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