Technical Analysis from August 18, 2011 on Forex Ratings
Whenever a trader executes a particular trade, he should not ignore the importance of three instruments: Bollinger Bands, Elliott Wave and Andrews Pitchfork. Using these professional tools in combination with each other will not only allow you to spot the best trades, but will also allow the trader to be way ahead of the crowd.
Andrews Pitchfork plays an integrating role in the relationship of these instruments, allowing you to make trading decisions based on the associated volatility of Bollinger Bands and Elliott Waves.
Regardless of whether they are main or auxiliary, contextual or local, Andrews’ Pitchfork is more informative than trend lines due to the Fibonacci ratios connecting the middle line with auxiliary lines (see diagram 1). Thus, they often outline not only extended volatility, but also indicate when price breaks out of a narrowing range.
If we carefully examine the various graphical elements in the diagram above, we will notice the following coincidence of the Bollinger Bands and Elliott Waves with the actions of the Andrews Pitchfork:
Wave 1, which started at the upper median line (UML), ended exactly at the lower median line (LML) of the Pitchfork. Wave 2, which began immediately at the lower median line (LML), bounced right on the median line (ML) and lingered on it for several bars until it finally declined sharply. Wave 3 started right at the median line. Subsequently, it reached the warning line (WL-1) within several bars. Wave 4 fluctuated within a trading range between the Warning Line (WL-1) and the Lower Median Line (LML) until it ended at the old low. lines (WL-1 and WL-2) to the lower Fibonacci line by 350%. (Note that the crossing of these two warning lines happened either through crossing and testing [WL-1], or through crossing and retesting [WL-2]).
As usual, the completion of an impulse pattern is followed by a strong reversal or consolidation. This time, as shown in the chart above, the market chose the latter option.
Bollinger Bands and Andrews Pitchfork Combination
In the second chart, we can see that the main trend is still downtrend despite a significant 75% correction. Level 6952 represents the old low of Wave 1, as well as a breakout level that will override the current Elliott Wave label if exceeded by more than 17%. We can see that the coincidence of the warning line (WL-2) of the major Pitchfork and the upper median line (uml) of the minor Pitchfork will precisely limit the price movement.
In this chart, we can see the subsequent development of the situation – as expected, the price continued its upward slope, reaching the border zone of Wave 4 and Wave 1 at the key level 6952.
A dilemma arises – will it violate the border or not?
If this happens, the label for the current Wave 4 impulse pattern will be re-labeled to a corrective ABC pattern. In this case, the price is likely to exceed the level of 7037. Otherwise, the price will sharply decline towards the last important low at the level of 6608 levels. In the following diagram, we see the result:
As we can see, the border was crossed, but the close above did not happen. It looks like Wave 5 is finally moving towards the key 6606 level.
At the moment, the local market movement is stopped by the warning line (wl-1) of the smaller Pitchfork, as well as by the warning line (WL-5) of the major Pitchfork. The price is in a narrowing range of Bollinger Bands. Despite this, volatile movement is expected in the near future.
The chart shows that there was a narrowing range of Bollinger Bands that lasted more than 24 hours, which ended in an explosive move several hours before the close of the day. After a good rally attempt, the signal line (labeled “Trigger L”) of the upward Pitchfork (not shown here) stopped the market.
Then, she began to decline during the final hour. The explosive motion was nearly depleted at noon and a new impulse model was created.
Corrective Wave 4 has retraced nearly the maximum distance to the border at the key level of 6853. Breaking this border will re-mark the current downtrend. The uptrend momentum seems to have intensified. Look at the volatility of the last 5 up bars, as well as the slope of the Stochastic, which not only violated its signal line (Trigger L), but also has a slope greater than 45 °. Bollinger Bands are currently marking a range, expecting an explosive move.
The boundary between Wave 4 and Wave 1 at 6853 was breached and the wave calculation was changed. The key 6950 level could stop the development of Wave 3, after which the correction in Wave 4 will begin. The final target of the movement is at the latest high of 7022. Watch for the inflection of the Bollinger Bands, which will indicate diminishing momentum. Stochastic shows a vertical continuation. Again, strong resistance is expected with a likely reversal at key 6950.
I hope that these practical examples showcased my technique, called “Andrews Pitchfork Analysis”. The concept is rooted in over 75 years of trading experience by masters such as Shebaker, Marshal, Andrews, Elliott, Gunn, and others.
This technique provides a professional trading approach based on my more than twenty years of experience. This method provides a trading advantage that cannot be ignored!