Pitchfork trading: selecting the right model!

In previous posts, I have made a quick introduction about all pitchfork models, from the basic to the sporty ones and explained the buy / sell signals and how to spot potential targets in terms of price and time. We will have to dig much further into this, be warned pitchfork trading is not just a tool, it is a special art with long training process!

This post will tell you which pitchfork model to select based on market configuration. Previous post highlighted you need 4 swing points that form a falling wedge to identifiy a buying opportunity. But wait, market does not always show this configuration!!!

Gold in above figure does not show a falling wedge, it is more a horizontal consolidation zone, right?

Exercise!!! Given we are looking at a set of 4 swing points, how many figures can we build?

The answer is 6 but I will let you think about it :-))))

In the case, drawing a basic pitchfork yields this:

This example being chosen randomly, it looks not too bad at first sight. SP1 is not sitting on median line meaning market strength and price exit nicely from the pitchfork to hit the hagopian line. But wait, we missed the falling wedge requirement!!! So the analysis is not valid!

For such configuration, the median slope is usually too high (in absolute value) to be of any trading sense. This is why you should change the configuration to Schiff mode.

The chart now looks like this

See the difference. SP4 has been moved vertically down to middle height between 3 and 4. Now we see that SP1 is below the median, then prices have gone up, hit the MLH and … are most like to revert down to median. I have tested and this scenario is much more likely than the previous one.

Now Let’s look at an other example

Ouch, it hurts. Can’t do anything with pitchfork, right? By the way, this is one of configuration expected from the exercise :-))

Drawing a basic pitchfork won’t give any buy signal before long long time :-))))

So first we draw an original pitchforlk (not Schiffed) but starting from last swing point

Then we extend the lines

SP1 is of course perfectly located on the median line. Now you just need to wait for prices to get out of the pitchfork.

In the next post, I will show the 6 configurations and which pitchfork applies in each case.

In the meantime, trade safely!