Dr Andrew’s Pitchfork, or just the Pitchfork as it is often known is one of the best tools to use in binary options trading as it enables the trader to construct a channel. This is important as channels have one excellent characteristic – they are clearly visible, thus making trading decisions easier to identify and to make. This is an easy to use trading tool which offers a lot of information about future price actions and therefore it is a very valuable one to be aware of and to understand. When trading binary options, the Pitchfork tool enables a trader to choose the perfect striking price which can then be adapted by with correct expiry date based on the pattern’s time frame.
There are three types of channels – rising (bullish), falling (bearish) and horizontal. In the case of a bullish market, a trader should purchase call options, in the case of a bearish market they should choose put options and a horizontal channel enables the trader to buy both put and call options by looking for divergence in the oscillator and price.
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The Pivot Points of the Pitchfork
The pitchfork begins at three pivot points which are vital as they form the beginning point of 3 separate lines – the middle (median) line which holds the most importance, together with the lower median and upper median lines.
The middle or median line is essential as it holds the characteristic of attracting the market price so a trader should avoid trading options by the time this line has been reached,
The lower and upper median lines act as potential places of resistance and support, therefore if the median line attracts the market price, put and call options are able to be traded.
Why is the Pitchfork Such a Useful Tool?
The Pitchfork is a useful trading tool for technically analysing the markets as it provides plenty of information about future levels of resistance and support as well as indicating when a particular trend ends.
The Pitchfork is also very easy to use as it only requires the trader to click their trading chart in three separate place in order to plot the Pitchfork. Choosing the pivot points is therefore a key decision as they are the basis of the Pitchfork’s angle and its analysis will be changed according to their location.
To find the right place for the first pivot, a trader should start at either a low or a high that the market is forming and make their first click. After that, they should look out for the 1st move lower for a bearish trend that will be corrected by a higher move that does not break the highs of the first pivot. This creates 3 pivot points and allows the pitchfork to be plotted.
How to Identify the End of a Trend
It is possible to identify the end of a trend and the time to look at a new Pitchfork for the new trend by drawing a trend line from the Pitchfork’s starting point up to the 3rd pivot’s ending point and then waiting for the price to break through it. Usually, it will act as resistance during a bearish trend or support during a bullish one, and the majority of the time, it will be broken and retested. If there is a clear break, this will have a large implication on future price actions as the entire prior trend will have been completed and a new one will begin.
The 3 lines which start out from the 3 pivots will form 2 equal channels which can also be split into 2 different parts. The 50% line which results also offers levels of support and resistance for any put or call options that may be traded, with expiry dates being altered according to the timeframe on which the Pitchfork tool is being used.
It is also possible to use 61.8% extensions on each side of the Pitchfork to find more levels of resistance and support to inform trading further, however this is not always very useful as it can provide too much data on the technical analysis charts.
Other educational articles
- How to Use Hedging Strategy to Manage Risk Effectively in Binary Options Trading
- Using Fundamental Analysis in Binary Options Trading
- Is It Possible to Successfully Trade a Flat Market in Binary Options Trading?
- Elliott Waves Analysis Really Works – Complex Corrections Patterns Included
- Use Simple Corrections In Elliott Waves Theory To Master The Market
- Using Fibonacci Confluence Zones To Trade Binary Options