This article focuses on rake analysis and median line trading and examines how the parallels of these trend lines can be utilized to provide structure for a market rise or fall. The purpose of this methodology is to attempt to identify the slope or slope of a market trend in order to focus on possible levels. support and resistance.
Let’s take a closer look at the rake and centerline and start by dismantling the setup. This describes how to formulate a given trading opportunity using rake analysis and the center line.
This article on trading with rakes and midlines is the second in a series exploring rakes and slopes.
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What is Andrew’s Pitchfork?
Pitchforks was developed by Dr Alan Andrews as a basic trending tool to identify price channels and provide structure for a market rise or fall. these trend line It provides a reaction zone and provides guidance on both price and time.
EUR / NZD chart showing rake
What is the center line?
The centerline is simply the bisector of a given channel or range. The pitchfork’s midline often provides a reference point and can trigger an inflection point or center point in price. When the price crosses the median, the target moves to the upper limit. parallel – Similarly, if the price falls below the center line, the target moves to a lower parallel line.
EUR/NZD Chart parallel lines in the pitchfork
Using a rake and centerline
The basic scenario is that when the price deviates from the lower parallel, it will be pulled towards the midline or bisector of a given range and vice versa away from the upper parallel. From the same point of view, a break from the center line as resistance will serve as support for a rally towards the upper parallel, and vice versa if the center line breaks into support (the center line will provide resistance when it rises). lower parallel).
The simplest way to start trading a pitchfork with a median line is to identify an initial trend line of support or resistance to which the market is reacting. Once you find that trendline, you can create a channel by extending the parallel (copy) of that trendline to the opposite side of the move (most recent key high/low). This is the most basic thing to identify a slope.
parallel is now support and resistance For further verification that you have identified the appropriate slope or angle of the trend as the structure for the trend and the market continue to evolve, you find the pivot at that parallel of that slope.
AUD/USD price chart showing trend line
Consider a trend line (resistance) connecting the two main peaks at the end of 2015 and at the beginning of 2016. AUD / USD. This parallel to the slope extending from the 2016 low was important to confirm support for the end-April decline when Australia was in free fall.
AUD/USD price chart showing parallel lines
This basic use of parallel lines can be very useful in identifying the basic center point of a price. As a trader, this means entry/exit points. But where do you find resistance to these deprecation reversals? Enter the pitchfork.
AUD/USD price chart showing center line
In the AUD/USD example above, June rebounded from the lower parallel, calling for a rally towards the midline of the range. The parallel that actually bisects the channel (extending from the September 2015 lows) provided a clear pivot in early 2016 and was an effective target for the rally, which peaked at the end of the month. This simple example shows how to use slope as a basis for targeting support/resistance.
AUD/USD price chart showing Pitchfork
Consider the same chart above. The pitchfork can be applied to the 2016 Open (blue arrow) using the three most recent low-high-low reference points and provides an uptrend to work with. As is often the case, the slope is the same as the previous slope derived from the next April high. That said, this formation would have warned much earlier of where the April rally ultimately found resistance.
In each subsequent rally, the rise reversed from the center line and ultimately returned to a lower parallel on the last attempt in August. This simple drill is intended to emphasize that identifying the appropriate slope rather than the tool used is the most important aspect of slope analysis. Obviously, the sooner the better.
how to draw a rake
Some important aspects to keep in mind when drawing a rake:
- Uptrend: The reference point should be low-high-low. Downtrend: The reference point should be high-low-high.
- When the price approaches the median, it does the following:
- reverse, or
- The price trades through the center line and goes towards the upper/lower center line parallel.
- Emphasize the slope, not the reference point. The most important thing when applying a rake is the gradient created. Has the price responded to that slope? Did you see a pivot/reaction at the junction? These are factors to consider before deviating from a given trend line. In other words, you may need to adjust the second low/high of the anchor point to more accurately fit the gradient.
- If the price is out of formation, identify a new rake in the opposite direction. If the price breaks the lower parallel of the ascending slope – find the short-term high-low-high as a reference point for the bottom of the correction. If the price breaks the upper parallel of the downward rake – find a low-high-low to provide an upward slope of the reversal.
With a clear identification of the slope, parallel lines extending from key highs and lows will often provide a clear central axis of price and be the level of interest for both targets and items. It is also worth noting that technical significance is added when the centerline converges on other key technical indicators such as: moving average, Fibonacci level, monthly/yearly high and low and emotion.
Highlights about the pitchfork and centerline
rakeIt can be very useful for identifying key reaction levels within a market trend, and once mastered, it can become an important part of your trading strategy. Always keep in mind that the main focus is to provide structure to the market and better find points of interest for trading opportunities.
In part 3 of the series, our article is Multi-Time Frame Analysis DIt’s a matter of combining the rake with various overlay indicators. This can help provide a more holistic approach to trading by identifying opportunities in both price and time.
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—Written by Michael Boutros, Technology Strategist at DailyFX.
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