By Dr. Mircea Dologa, MD, CTA*
Posted: Feb 27, 2009

Given the importance of the trigger line, we will dedicate an entire article to this subject. As we know, our trading is mainly based, at any one time, on one of these three parameters:

• Trending
• Support and resistance
• Volatility

Dr. Andrews' pitchfork efficiently assists the astute trader with the median line (ML) and its acolytes. The median line exhibits its full importance when market flow is within the main body of the pitchfork. The trigger line with warning lines will manifest its contribution only after market flow has spilled over the borders of the main body.

The construction of the trigger line (TL) is handy to follow; its line joins the pivotal anchor (P0) with the P1 pivot (upper trigger line [U-TL]) or the P2 pivot (lower trigger line [L-TL]) for an up-sloping pitchfork (refer to Figure 1).

Whenever a failure (momentum cut-off) occurs, the trigger line can be used as a confirmation of the change in trend.

The way these trigger lines behave, when they are touched or penetrated, is no different than how median lines or their associates behave in the same circumstance, especially when it concerns testing, piercing or zooming through.

The Hagopian Rule and Line

Given the importance of the very little known Hagopian Rule, we will repeat it here for the benefit of the reader who may not know it. The rule applies when an up-sloping market is approaching a significant trend line (slant, horizontal or curvilinear), but it's not strong enough to test it (Example: The ML of an up-sloping pitchfork).

The rule states that the price will reverse vigorously after approaching the ML in a big counter-move. Then, it drops like a rock toward an opposite strong trend line (L-MLH and the lower trigger line [L-TL], in our Figure 1 example). Its reverse momentum is usually stronger than the momentum of its prior approach.

In its strong counter-move impetus, price will meet the same trend line that it was drifting alongside of before reversing. In our example, that line is the lower trigger line (L-TL), which joined the anchor (P0) and the P2 of the up-sloping pitchfork (refer to Figure 1). It represents the Hagopian Line, which has the benefit of completing the set-up of the price failure rule.

Figure 1

The lower trigger line of the pitchfork shown above naturally converts into a Hagopian Line at the occurrence of the double up-sloping price failures revealed by the strong slant resistance (TL-1). Concerning the Hagopian Line, Dr. Alan H. Andrews clearly stated:

When prices reverse trend before reaching a line [ML in our example] at which probability indicates such a reversal could start, proper action may be taken in buying or selling, if prices cross the trend line [L-TL in our example] they were moving along before reversing.

The Hagopian Rule is clearly illustrated in the 5-minute German Dax futures chart shown above (refer to Figure 1). After the two up-sloping failures in the 5073 - 5070 price zone (lower highs), the price dropped like a stone, in a huge counter-trend movement. It zoomed through the Hagopian Line (lower trigger line in our example) and then re-tested the line twice before deciding to take the path of least resistance in a high downward momentum move. The numerous, huge down-sloping bars confirmed it.

Parallel Trigger Line Channel Can Signal the Trend's Termination

Whenever the trigger lines are out of the market flow field, we can successfully replace them with parallel trigger lines.

Figure 2

The gold futures chart shown above, with its current 8110 highest high, might make the trader wonder…What is so special about this? We have drawn it because we would like that trader to imagine what tools would be the best for the “would-be” pitchfork's trigger lines or the parallel trigger lines.

Figure 3

Now, on Figure 3, we have drawn the pitchfork from the chart of Figure 2, but with its upper trend line added. One can obviously see that the trigger line is outside, far away from the market flow field.

Figure 4

On the pitchfork shown above in Figure 4, we have drawn, not only its upper trigger line, as in Figure 3, but also its parallel trigger line up-sloping channel formed by the following:

• The upper border parallel trigger line, drawn from the intersection of the P1-P2 midpoint swing with the median line
• The lower border parallel trigger line, drawn from the pitchfork's P2 pivot
• The mid-channel line, which splits the channel into two parts

One can obviously observe in Figure 4 that market flow is cruising upward along the lower mid-channel. It seems that the last price bar is initiating a breakout of the mid-channel line, having as a prime target the upper border or maybe even higher. The ultimate target would be the upper part of the trigger line, in the case of an extended trend.

Figure 5

On the pitchfork shown above in Figure 5, we have drawn, not only its parallel trigger line up-sloping channel (as in Figure 4), but also the pitchfork's third upper warning line (WL-3). Market flow has continued climbing from the 8110 to the 8480 key level.

As we had anticipated, market price has already attained the upper border of the parallel trigger line channel, and now it is being trapped under it, in spite of the last two bars' highs, which almost reached WL-3. This double halting, on the high and close levels of the last two bars, signals a very strong and very probable reversal.

Figure 6

It is always safe to have a complementary signal confirmation. We were able to find an emerging rectangle (refer to Figure 6), which has constituted the foundation of this strong three-month trend.

We can observe that the 839.3 key level represents its sixth extension, just a few points away from the current highest high at 848.0. Our confidence has increased considerably, and we are ready for a short trade, if market flow will reverse.

Figure 7

As we had anticipated, after performing a small doji, the market suddenly dropped (refer to Figure 7).

Figure 8

Even on its way down, the market obeys WL-1 and the channel's lower-border confluence (refer to Figure 8).

The Parallel Trigger Line Channel and Its Extensions -- Corrective Wave Projection

Figure 9

After the high-powered down-sloping impulse wave has been halted at the 7917 key level, we have drawn a parallel trigger trend line (refer to Figure 9). We are now expecting a correction wave, which can be a zigzag, a flat or a triangle pattern.

We have opted for the zigzag correction pattern, given the high-powered down momentum, which will probably travel along a parallel trigger line channel, whose lower border is already drawn.

If we apply the "What If..." concept, we should also be prepared for a flat or a triangle correction; thus we have drawn the horizontal trend lines at the 7917, 8025 and 8107 key levels.

Figure 10

The advantage of the parallel trigger line channel is that it can be constructed with only two opposite touches instead of the four indispensable touches necessary to construct the classic channel (refer to Figure 10). Thus, we have started to draw an ascending channel whose complete form is not yet finally defined.

If we carefully study the inception of the correction movement shown above, we realize that we have, so far, two choices for possible chart formations.

In the first choice, our expected chart formation has an up-sloping direction conforming to that of the trigger line. It is graphically oriented in the direction of the parallel trigger channel. So far, we already have two touches, on the upper and lower parallel trigger lines. We'll see what the following bars will have to offer...

The second chart formation is a less probable one, taking the form of a flat or complex pattern and a horizontal pattern…maybe a rectangle. Once again, the next bars will have the last word...

Figure 11

The market dropped all the way down to the lower border of the parallel trigger line channel (refer to Figure 11). For now, it seems that the probability that our expected chart formation will take shape is enhanced and even vouched for, because it already has four touches. Plus, it has not only tested and re-tested the lower border but has also reversed and started to climb.

At any rate, the 7917 lowest low of the local market hasn't yet been touched, meaning that the probability of a rectangle choice is, for the moment, close to zero.

Figure 12

As we had anticipated, the up-sloping parallel trigger channel is confirmed with a steep 45° slope (refer to Figure 12). The channel is well established, having three lower border channel touches and seven upper border channel touches.

The local market seemed to be inclined to reverse, but, then, for a moment, halted just on the midline of the channel.

Figure 13

As we have taken into consideration in the prior chart, the market flow not only reversed, but it spilled down from the initial channel (refer to Figure 13). It dropped all the way down to the 150% extension of the initial channel, to the 7830 key level, being short only 30 points off the whole number 7800 key level , which at the same time, is a strong, old, low level (P2).

As you can see from the preceding explanation and the accompanying charts, parallel trigger line channeling, combined with its extensions and guided by the Fibonacci ratios, provides a real edge for the professional trader.

*Reprinted (and modified) with permission from Dr. Mircea Dologa, MD, CTA, a Commodity Trading Advisor, Stock Investment Advisor and the founder of a new teaching concept for newcomers and experienced traders at www.pitchforktrader.com. He can be contacted, for any questions, at mircdologa@yahoo.com.