The Pitchfork indicator, also known as Andrew’s Pitchfork, can be utilised by traders to identify profitable trading opportunities. While originally geared towards equities and futures markets, the Pitchfork can also be applied to cryptocurrency markets.
Andrew’s Pitchfork is named after Dr. Alan Andrews, who formulated the method in the 1960s. The Pitchfork indicator provides two lines that represent support and resistance as well as a middle line (which can be thought of as support or resistance as well).
Andrews stated that price action will trade near the middle line 80% of the time, while extreme changes in sentiment or fluctuations in the market account for the remaining 20%.
Applying Andrew’s Pitchfork to the Chart
Open up the Drawings Toolbar and select the 'Pitchfork' icon:
You can edit the points by selecting the ‘Settings’ button (shown below) and then entering the prices of the swing low/swing high points you’d like to use.
To apply the indicator to the chart, identify a swing high or swing low point which will be known as the pivot. Once you’ve selected your pivot point, then you must identify both a peak and trough to the right of the pivot. The median line aligns with the initial pivot point while the other two lines represent support and resistance of the underlying trend.
There are two ways to trade the Pitchfork: first, trade within the channel. For instance, sell once the price reaches the resistance and buy at support/median line. Alternatively, they can buy at the lower support and then sell at the median line/resistance.
Another way to trade the pitchfork is to fade breakouts from the channel. For instance, if the price moves above the upper resistance line, a trader can go short as the price should eventually return close to the median line in the long run.
However, you have to be careful in case the price moving out of the channel may be a change in trend. Use other indicators, such as candlestick patterns, oscillators and volume, in conjunction with Andrew’s pitchfork to assess whether the price will return to the median line or if there is a change in trend.
An example is illustrated below using BTC-PERP:
When drawing the pitchfork, we use the points A, B and C. The first point of the Pitchfork is applied to point A, a swing low point for BTC-PERP. Then the next point that is applied is B, a swing high point to the right of the pivot A. Finally, the Pitchfork indicator is applied once we have aligned the lower channel with point C, a swing low point to the right of point A.
As the chart shows, the pitchfork is closely aligned with the uptrend and picks out important areas where reversals tend to occur. For example, after drawing the pitchfork we would have seen the price move below the support line, signalling a potential buying opportunity. There was a Doji candlestick pattern which denotes indecision and a potential reversal of the short-term downtrend.
Therefore, a trader could have opened a long position near the lower channel that provided support, or alternatively, waited for confirmation by entering a long position once the price moved back above the support line.
As the chart shows, the price re-entered the Pitchfork on a high-volume candlestick, which would’ve provided confirmation to go long. The uptrend projected by the Pitchfork was still in play. Eventually, the price returned to the median line and went on to test resistance at the upper channel, which would have been an opportunity to exit any long positions (or to enter a short position).