Advanced Modified Andrews’ Pitchfork to Follow the Price Channels. A technical indicator that uses three parallel trendlines to identify possible levels of support and resistance. The trendlines are created by placing three points at the end of identified trends.
This is usually achieved by placing the points in three consecutive peaks or troughs. Once the points have been placed, a straight line is drawn from the first point that intersects the midpoint of the other two.
- Do nothing when price is moving around the middle band.
- Sell when price reaches the upper band.
- Buy when price reaches the lower band.
- On a downtrend, buy when price breaks above the upper band.
- On an uptrend, sell when price breaks below lower band.
Let’s assume you are tracking a specific currency pair, USD/CAD. After confirming the downside momentum in it with the help of some other technical tool like the Stochastic Oscillator, you decide to initiate an entry position in the counter.
With the help of strong and monetarily prudent approach and appropriate stop losses in place, your trade can be executed at point where the price action is trying to shift back to the median zone and who knows you can actually get significant gains.
Another option, though less frequently used is trading outside the lines. It can be used over an extended period albeit a slightly trickier way to tackle it is required. The assumption generally is that any potential break outside the lines could signal the beginning of a new trend.
However, it helps to confirm the ongoing trend with another trend. This ensures that a catastrophic loss is prevented, and also potential false signals are avoided. For a better perspective, you can even isolate and zoom the area once the breakout is identified.
Initiating the trade and making an entry always acts as a crucial test. While playing for an upmove, for example, before anything first of all test the upper resistance level. This is to ensure that a downward spiral is not in the works to ruin your trading strategy.
The price action breaking above the resistance line will confirm further upmove in prices and bear proof of additional buying interest. However strong this momentum might be, never forget to put your stop losses in place.