I’m not talking French Revolution or anything like that – at least I hope not – but to tie in with this week’s IG TV interview with Eddie Tofpik MSTA, Senior Markets Analysts at ADMISI, where he makes extensive use of Andrews Pitchforks. Think of it as a trend channel, but where the angle is determined by a central line and the outside edges are at a starting interim high and low. Also known as the Median Line method, 3 points are needed to draw the lines. Points B and C (connected by an invisible straight line) are bisected by a line drawn from A, the central line of the channel.
Prices tend to hug the central tine of the pitchfork, then work either under or over it for a while. I see similarities between the pitchfork and mean regression and its standard deviations. These are mathematically calculated from the actual prices but I think you’ll quickly see the similarity. Glynn Bradney, previously ay Metastock Reuters and a computer geek, introduced me to the concept of a 1.61 per cent deviation around a mean regression. You can see where he’s coming from, being a technical analyst and a believer in Fibonacci ratios.
In my ‘antique’ version of John Murphy’s ‘Technical Analysis of the Futures Markets’ book, he covers Andrews Pitchfork on one page in chapter 15: Computers and Trading Systems. He prefaces the topic by saying: ‘How does one cope with so much from which to choose? The answer is to first use the basic tools such as price, volume and open interest (obviously, he has a derivatives background), trendlines, percentage retracements, moving averages, and oscillators…Users will have to decide for themselves the value of remaining tools and options’. So, very much second best as far as he’s concerned.