By Ron Jaenisch
Alan Andrews is well known for the use of median and parallel lines in trading. These are used by many traders to determine the trend and about how far prices are likely to go. What is now known as the pitchfork, utilizes three pivot points with the general concept that prices are likely to reach the median line. In Figure 1 the pivots are labeled as A B C. The midpoint between B and C is found and a median line is drawn from pivot A. Parallel lines are then drawn, this gives the appearance of a pitchfork.
Roger Babson, at the Gravity Research Foundation meetings, taught Professor Andrews how determine the approximate location of pivots as prices travel in a trend . Alan Andrews taught that Babson’s technique utilized Newton’s third law of motion to make this determination.
Professor Alan Andrews was well known for advising his clients, and teaching a course through his weekly course letters, which would arrive on Monday morning. In the 1960’s and early 1970’s, in each newsletter there was an orders indicated section which the client was to read verbatim to his broker. The objective was to turn a $5,000 account into over $50,000 in less than a year. Records, which are now part of the 800 page Expanded Andrews Course, show that in the 1960’s and early 1970’s he was able to accomplish this regularly.
Along with the weekly course newsletter came charts and explanations of various concepts related to trading. Some covered how to estimate how far prices will go in the future. This was using Newton’s first law of motion. This concept was different from the standard median line concept and Roger Babson’s Action Reaction Concept.
In the writings of Professor Andrews was a concept that has been historically tested and turned into an easy to use indicator. Here it is referred to as the (NAPI) New Andrews Pitchfork Indicator. The benefit of this indicator is that it is not optimized and not optimizable, except by adding other indicators. It is well known that optimizing indicators for use with historical data is much like a lumber yard, because you can build anything you want with it.
Not optimizing, and a lack of being able to vary the indicator in different situations has its drawbacks. As a result the indicator registers a zero or no forecast for some future swings. But it makes up for it with uncanny conservative forecasts on other pivot points.
The new Andrews Pitchfork Indicator (NAPI) has a considerable value when it comes to knowing when to enter a swing point and estimating the minimum percentage of the swing. It may also be used in conjunction with the median line to forecast how far the move will go in respect to the most recent median line of the Andrews Pitchfork.
When the last pivot is labeled a five by the indicator, the result is prices typically go past the green far parallel line.
Figure #2 shows examples of moves that were labeled a five and that price went beyond the far parallel. Note that the moves were over five percent measuring peak to low.
When the indicator only reaches a value of three, a move of three percent or more is anticipated.
In this case prices either make it past the median line, (as seen in Figure #3) or get very close to it before making a swing in the opposite direction. In the original video to this indicator on you tube it showed the days where the value is one or two. These may be useful in conjunction with other indicators In order to test out the indicator and perform optimization test runs it will be included in future versions of software given to members of the Advanced Andrews Course.
How can it be used in conjunction with the Babson lines. In a prior article, this author showed how future reaction lines are found with the Babson technique. The Babson reaction lines are used to determine a target area in the future. NAPI signals can show up during a trend as prices pull back for a day or two. When the NAPI gives a value that signals continuation of the trend, the next Babson line is regarded as a target area. In addition prices are known to go past an Andrews Line or a Babson Reaction Line and pull back temporarily. It is during this pull back that a NAPI trend continuation signal is used by some traders to put on additional positions or initial positions, when day trading.
All of the posts on the Andewspitchfork.com website focus upon the S&P Index. Why? Because of liquidity. This brings up the question… Does it work elsewhere? The answer is Yes. It can be applied to stocks as well as futures.
The indicator value is available, when the market opens and after the market closes at the andrewspitchfork.com website. This is free to the public. It should be noted that this value may change between market open and market close. On the published charts at www.andrewspitchfork.com the value at the end of the day is posted. If the charts contain the words early or noon, they have a last day value that may change when the market closes. It is only the end of day (EOD) values that are not subject to change.
In the first video, that was posted on you tube, charts like the one above and below were shown. The values that were shown in the video were one through four. It was determined that the values of one and two needed some type of optimization to improve their reliability. The optimization consisted of focusing upon a subset of the bars when the NAPI had a value such as one or two. Initially the simplest form of Elliott wave was used and the pivots that are a possible end of wave B, 1, or C, are noted in the chart above if they had a value of one or two according to NAPI. It appears that most of these exceeded the three percent threshold. As one views the video (link at andrewspitchfork.com) one can imagine the possibilities with the many NAPI one’s and two’s for short term traders.
About the author: Ron Jaenisch was a student of Alan Andrews, who spent time with him at seminars and the kitchen table to learn the methods. The author operates Andrewscourse.com and teaches the Advanced Andrews Course through web based seminars, a course manual and other group events. He posts updates to the indicator on www. Andrewspitchfork.com. He can be contacted via email at firstname.lastname@example.org
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