From the April 01, 2012 issue of Futures Magazine • Subscribe!

Hidden truths of Andrews’ pitchfork

Timing is everything

Confirmation is a tenet of all trading strategies, Andrews’ pitchfork included. Confirmation refers to using an unrelated secondary technique to validate the signals generated by the primary technique. Indeed, Andrews often practiced this with his pitchfork, even though it always may not have been obvious.

In the 1970s, Andrews would mail a script to his students on a Friday. They were to read the script verbatim to their brokers on Monday morning. Andrews would do this for a period of a few months every year. The results were strong. Students would extrapolate from these periods of exceedingly high profits, and many came to the conclusion that by drawing various lines for buy and sell points, they could make massive profits easily and quickly trading any commodity futures contract at any time.

However, an in-depth examination of Andrews’ trading during these periods — when he would provide these order scripts — reveals some interesting habits that may or may not have been apparent to the students at the time. Andrews’ pitchfork analysis was not done in a vacuum. He applied the timing methods when the market was poised for a strong impulse wave. These waves were identified by specific patterns. One of these casually was termed the “megaphone” or “reverse point wave.”

This pattern encompasses a five-wave move (three impulse waves and two retracement waves). It emerges when a trendline extends in one direction for three of the pivots and in the opposite direction for the other two pivots (see “Making noise,” below). Andrews watched the market for this pattern, and others, and then applied his pitchfork to time the trade.

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