Applying the median line

Once you have learned the basics of median line study and know how to draw Andrew’s pitchfork, it’s time to apply it. Median Line Study is strongly associated with stock trading, but it can be applied to other forms of trading as well, e.g. currency trading.

Alan H. Andrew, who helped popularize median line study through his mail-order courses in the 1960s and 1970s, assumed that an overall longer-term trend will remain intact regardless of minor fluctuations up and down, until it breaks and a new trend is formed. (According to Andrew, price action will stay within the pitchfork 80% of the time.) A notable difficulty for the price to go back to the median after a fluctuation can indicate that a break is about to take place.

Trading within the channel

First, you much establish the channel on your chart, i.e. draw Andrew’s pitch-fork.

1. Look at the chart and pick a peak or a through. Mark this point with the letter A.
2. Look at the chart and identify a peak and a trough to the right of point A, a correction following the peak or through that is your point A. Use the correction to mark out a point B and a point C.
3. Draw lines extending to the right from A, B and C, respectively. Does it look like a pitchfork? If so, your on the right track.
4. The handle of your pitchfork is the median line. The lines extending from point B and point C are the prongs. The prongs will show you the support level and the resistance level of the trend. The prongs are the outer limits of the channel.

Trading within the channel means taking advantage of the fact that the price is likely to stay within the channel. You can trade without getting distracted by minor bumps up and down. You basing your buys and sells on a trend, not on minor and short-lived corrections.

Trading outside the channel

When median line study became popular in the 1960s, trading within the channel was the main idea hailed by median line study proponents. However, it is definitely possible for a skilled trader to use the pitchfork to profitably trade outside the channel as well. It is a bit more tricky though, since you must develop your ability to notice when a new trend is about to be established.

To draw the pitchfork, use the same steps as for trading within the channel.

Sources & further reading:

Andrews’ Pitchfork [ChartSchool]: StockCharts.com : English : Fetched  2016-03-24

Make Sharp Trades Using Andrew’s Pitchfork: Investopedia : English : Fetched  2016-02-17

Trading signals:  Binaryoptions.co.uk : English : Fetched  2016-01-23

Pitchfork Primer:  Pitchforkprimer.com : English : Fetched  2016-03-11