Andrews Pitchfork Breakout Trade
Because hindsight is a perfect science and it is easy to go back in the charts to look for exactly the right setup for a strategy, I decided to hold off with posting this until the trade occurred.
This GBP/JPY 15 min chart shows the pitchfork with points A (Pivot) B and C with the neckline running between B and C (Blue) and the trigger line running from A to C (pink Line)
Even though the original Pitch Fork B an C settings were different, I move the neckline up as the market makes higher highs and higher lows or down in a down trend as the market makes lower highs and lower lows. I keep the Pivot constant until the trend changes. The trigger line will always extend from point A to the higher low at Point C.
Because the market is dynamic and always on the move, as long as it is making higher highs and higher lows in an uptrend I keep moving the neck line, otherwise during periods of inactivity or consolidation the candles break out of the lower support line even though the market is still trending long.
GBP/JPY 15 min Chart Click to enlarge.
When the last neck line was created between B and C the pair was still in an up trend as C was a higher low. Andrews rule states that price will return to the median line 80% of the time and as we can see the turquoise shading the candle hit the center line and started to retrace.
When the new candle opened below the trigger line (pink) it was the signal to enter the market short. My stop loss above the previous high at at 213. 35 was to big so I placed my stop 30 pips above the trigger line. Its all about risk and the trigger line is a valid trend line and therefore became my new resistance for the trade.
My initial target for the trade was the outer trend line at the bottom of the screen some 200 pips away. At this stage I also added Fibonacci retracements to check if the target was feasable. On the Fib we can see the retracement started at .786 Fib retracement level.
Within 30 min of entering price had moved 100 pips through the 1.618 Fib level and over the next few hours went all the way the the Fib 2.618. Unfortunately I closed out at 100 pips on the trade and watched as it made its way to the 2.618 Fib target.
The Eur/Jpy had a similar setup today and yeilded about 70 pips turning just short of the 1.618 Fib Level.
This GBP/JPY 15 min chart shows the pitchfork with points A (Pivot) B and C with the neckline running between B and C (Blue) and the trigger line running from A to C (pink Line)
Even though the original Pitch Fork B an C settings were different, I move the neckline up as the market makes higher highs and higher lows or down in a down trend as the market makes lower highs and lower lows. I keep the Pivot constant until the trend changes. The trigger line will always extend from point A to the higher low at Point C.
Because the market is dynamic and always on the move, as long as it is making higher highs and higher lows in an uptrend I keep moving the neck line, otherwise during periods of inactivity or consolidation the candles break out of the lower support line even though the market is still trending long.
GBP/JPY 15 min Chart Click to enlarge.
When the last neck line was created between B and C the pair was still in an up trend as C was a higher low. Andrews rule states that price will return to the median line 80% of the time and as we can see the turquoise shading the candle hit the center line and started to retrace.
When the new candle opened below the trigger line (pink) it was the signal to enter the market short. My stop loss above the previous high at at 213. 35 was to big so I placed my stop 30 pips above the trigger line. Its all about risk and the trigger line is a valid trend line and therefore became my new resistance for the trade.
My initial target for the trade was the outer trend line at the bottom of the screen some 200 pips away. At this stage I also added Fibonacci retracements to check if the target was feasable. On the Fib we can see the retracement started at .786 Fib retracement level.
Within 30 min of entering price had moved 100 pips through the 1.618 Fib level and over the next few hours went all the way the the Fib 2.618. Unfortunately I closed out at 100 pips on the trade and watched as it made its way to the 2.618 Fib target.
The Eur/Jpy had a similar setup today and yeilded about 70 pips turning just short of the 1.618 Fib Level.
Summary
- Establish the trough or peak for the Pivot A
- Draw in the Trigger Line from point A to C
- Move the neck line A-C as the market makes higher highs and lows whilst keeping the pivot A conatant.
- Move the Triger Line A- C to each new neckline point.
- Enter trade on the break of the trigger line.
- Place stop according to your money management rules.
- Aim for one and a half to double your risk as a profit target or use another tool like Fibonacci to set your target.
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