Foreign exchange markets involve large number of buyers and sellers at any time, as the trading commence in different sessions that are divided according to time zones. Traders use many technical analysis tools to study the correlation between prices of different sessions and financial markets. One such tool that provides good inputs to traders is known as study of Andrew’s pitchfork. We are going to discuss these aspects of Foreign Exchange market in the article below.
About Andrew’s Pitchfork:
It is basically trend channel that consists of three lines with median line in the centre. The other two lines comprise of parallel equidistant trend lines on both sides of the median line. Foreign Exchange Traders term this study as the study of median line that utilizes the concept of support, retracement and resistance levels very well.
Formulating Andrew’s Pitchfork for Foreign Exchange:
The first step towards formulation of this indicator is finding the most important retracement point in the chart on the basis of reaction low or highs. These points can also be termed as pivot points. This point is actually the start of median line. After this trader should now look for the next significant pivot point and finally in the last step trader will have to plot a line from the third most important retracement point in the currency chart. These two points need to be carefully drawn as they define the actual width of pitchfork channel. It is now that the Foreign Exchange charting software will finish the pitchfork, and create the upper and lower resistance and support tine. The steepness of this channel depends on the drawing of three points, and finding the first pivot point is the most crucial thing in this type of analysis. These crucial points are selected on the basis of reaction low and highs while moving from one point to another in the chart. The two parallel lines on both sides of median line suggest the resistance and support levels.
Rule for interpretation of buy and sell signals are the same as in support and resistance levels. Here also for buying signal trader will have to observe the support line and for sell signal, resistance line is consulted. Foreign Exchange Market experts tell us that the trend in the market is remain in place till the time price line is within this channel, and the moment it crosses the pitchfork channel, traders can expect a trend reversal.
Use of Trigger lines:
This indicator also uses trigger lines that are nothing but the trend lines that get originated from the start of the median line, that is referred as point no 1. A buy signal is observed when the there is a break above the upper trigger line. Here the sell signal is confirmed when there is a break below the lower trigger line in the chart.
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