By Dr. Mircea Dologa, MD, CTA*
Posted: Jun 26, 2009
As most of us know, a pitchfork can't be constructed without knowing the exact location of the anchor (P0 pivot) and the P1 and P2 pivots, which will dictate the size and the slope of the P1 - P2 swing.
First, let me describe the morphology elements of the common pitchfork:
The length and slope of the handle will definitely influence the performances of the pitchfork's task. The handle is defined as the distance between the anchor (P0 pivot) and the P1 - P2 swing's midpoint (refer to Figure 3).
The height and slope of the P1 - P2 swing will also play an important role in creating the slope of the trigger lines. A steeper slope causes the height to be taller, and a leaner slope causes the height to be shorter.
The handle's size and the P1 - P2 swing's size angle rotation will greatly influence the risk of the trade.
A trend failure will convert a trigger line into a Hagopian line.
A previous article did a detailed study of the handle and P1 - P2 characteristics. In this article, we will try to understand if the efficiency of the pitchfork task will be affected by the choice of the anchor location. This is very possible because we know already that the choice of the pitchfork's pivots will greatly influence its efficiency, which is expressed as how well the market flow is described.
We will go into greater detail concerning the synergistic effect of the parallel trigger lines and P1 - P2 Fibs ratio trend lines in a future article.
Variable Time / Price Anchor Location of Pitchforks
Figure 1. This chart sets the scene for choosing the best anchor location through the use of Cartesian coordinates. The anchor's location will be chosen at the price and time intersection (due to the Gann principle that states that high-probability reversals occur where time meets price).
Figure 2. This chart illustrates the crisscross of the time / price Fibonacci trend lines. They set the scene for choosing the best anchor location through the use of Cartesian coordinates.
Description of the Variable Anchor Location Set-Up
We are guided by the concept that the anchor (P0 or p0) can be situated anywhere in the area delineated, to the right of the chart (refer to Figure 2), by the p1 - p2 swing, and to the left of the chart by the vertical line dropped through the major P0 pivot, which represents the lowest low of the preceding swing.
The anchor's location will be at the intersection of a horizontal Fibonacci trend line (division of the price–height of the chart-space) with a vertical Fibonacci trend line (division of the time–length of the chart-space). The former will be obtained by applying the Fibonacci ratios to the height of the p1 - p2 swing, and the latter will be obtained by applying the Fibonacci ratios to the p0 - p2 horizontal distance.
We should mention that the P0 pivot will remain immobile, representing a classic pivot, while the p0 variable location pivot will move in the delineated area, stabilizing at the intersection of the time / price Fibs lines, identified by Cartesian coordinates.
Description of the Classic Anchor Set-Up (P0=p0)
Figure 3. This chart shows a classic pitchfork. The anchor location (P0=p0) is the low of the preceding swing.
The first example of an anchor location illustrated in Figure 3 is a classic one that uses the lowest low of the swing opposite the p1 - p2 swing, where P0 equals p0. Attentive observation of the context of the chart will show whether the pitchfork will optimally describe the market flow:
The slope of the drawn pitchfork is ascending, encasing most of the chart, with the exception of Gap n° 1.
Both descending opening gaps (Gaps n° 1 and 2) of the terminal portion of the local market chart have their specific roles:
Gap n° 1 was conceived while the market flow considered the upper median line (U-MLH) as a very strong support; therefore, it jumped it rather than testing it before zooming through. Then, the market price tried to fill the gap, but it encountered very solid resistance by the gap's floor formed by the upper median line (U-MLH). When the latter had been tested several times, it didn't give in, and the market finally decided to drop testing on its way down the upper 50% Fibonacci lines.
Gap n° 2 was formed under the influence of the high-powered down momentum. As a consequence, this second gap jumped over the median line (ML), zooming through it all the way down to the lower 50% Fibonacci line.
The median line (ML) passed through the 61.8% point of the September 26 opening gap.
We have purposely omitted drawing a minor down-sloping pitchfork, having an anchor on the highest high, right on the sliding parallel line (PH). It would probably have described the local market very well, but adding it to the chart would have crowded it with too much detail.
Conclusion: If we were to have to evaluate the efficiency of the pitchfork to describe the market flow, on a scale from 1 to 10, we would give it an eight.
Description of the First Variable Anchor Set-Up (23.6% and 23.6% T / P Cartesians)
Figure 4. The pitchfork in this chart is our first variable anchor version. This time, the anchor location is at a time / price Fibonacci intersection. The classic P0 pivot doesn't coincide with the variable p0 pivot.
The second anchor location (first variable) example illustrated in Figure 4 uses a variable p0 pivotal anchor established at the confluence of the 23.6% time Cartesian coordinate and the 23.6% price Cartesian coordinate. A careful examination of the context of the chart will show whether the pitchfork will optimally describe the market flow:
The slope of the drawn pitchfork is ascending, encasing most of the chart, with the exception of the last portion of the local market containing the recent moves.
Both of the descending opening gaps of the terminal portion of the local market chart have their specific roles (Gaps n° 1 and 2 -- not labeled here but identical to those of Figure 3).
The median line serves as a symmetry axis for the last eight trading days.
The last gap (Gap n° 2) has been formed out of the main body of the pitchfork, right under the lower median line (L-MLH).
Conclusion: If we were to have to evaluate the efficiency of the pitchfork to describe the market flow, on a scale from 1 to 10, we would give it a nine.
Description of the Second Variable Anchor Set-Up (14.6% and 23.6% T / P Cartesians)
Figure 5. The pitchfork in this chart is our second variable anchor version. The anchor location is at a time / price Fibonacci intersection.
The third anchor location (second variable) example illustrated in Figure 5 uses a variable p0 pivotal anchor established at the confluence of the 14.6% time Cartesian coordinate and the 23.6% price Cartesian coordinate. A careful examination of the context of the chart will show us whether the pitchfork will optimally describe the market flow:
The slope of the drawn pitchfork is ascending, encasing most of the chart, with the exception of the last portion of the local market (almost identical to the example in Figure 4).
Both descending opening gaps of the terminal portion of the local market chart have their specific roles (Gaps n° 1 and 2 -- not labeled here but identical as those of the Figure 3).
The median line serves as a symmetry axis for the last eight trading days (but less so than in the second example).
The last gap (Gap n° 2) has been formed mostly within the main body of the pitchfork, with the lower median line (L-MLH) serving as the gap's last third delineated frontier.
Conclusion: If we were to have to evaluate the efficiency of the pitchfork to describe the market flow, on a scale from 1 to 10, we would give it a nine.
Description of the Third Variable Anchor Set-Up (50 % and 50% T / P Cartesians)
Figure 6. The pitchfork in this chart is our third variable anchor version. The anchor location is at a time / price Fibonacci intersection.
The fourth anchor location (third variable) example illustrated in Figure 6 uses a variable p0 pivotal anchor established at the confluence of the 50% time Cartesian coordinate and the 50% price Cartesian coordinate. A detailed study of the context of the chart will reveal whether the pitchfork will optimally describe the market flow:
The slope of the drawn ascending pitchfork has drastically changed compared with the preceding examples. It has simply been inversed, being now less than horizontal.
The market flow is not encased anymore in the pitchfork's main body. In spite of this, the pitchfork acolytes describe pretty well the contextual and local market. Almost all of them represent strong resistance or support.
Both descending opening gaps of the terminal portion of the local market chart have their specific roles (Gaps n° 1 and 2 -- not labeled here but identical to those of Figure 3), even if they are now located outside the main body of the pitchfork.
It seems that the median line has lost, for now, its magnet role, and it doesn't serve as a symmetry axis. This is only normal because the median line yielded, for the moment, its principal roles to its acolytes, especially to the warning line and the upper 50% Fibs lines.
We have purposely omitted drawing a minor down-sloping pitchfork, having an anchor on the highest high, just above the last upper 50% Fibs line. It would probably have described the local market very well. But, we didn't do it because adding it to the chart would make it too crowded.
Conclusion: If we were to have to evaluate the efficiency of the pitchfork to describe the market flow, on a scale from 1 to 10, we would give it an eight.
Description of the Fourth Variable Anchor Set-Up (38.2 % and 38.2% T / P Cartesians)
Figure 7. The pitchfork in this chart is our fourth variable anchor version. The anchor location is at a time / price Fibonacci intersection.
The fifth anchor location (fourth variable) example illustrated in Figure 7 uses a variable p0 pivotal anchor established at the confluence of the 38.2% time Cartesian coordinate and the 38.6% price Cartesian coordinate. A careful study of the context of the chart will reveal whether the pitchfork will optimally describe the market flow:
The slope of the drawn ascending pitchfork is now up around 22°.
The market flow is almost encased in the pitchfork's main body. Both descending opening gaps of the terminal portion of the local market chart are now almost encased in the pitchfork's main body and have their specific roles (Gaps n° 1 and 2 -- not labeled here but identical to those of Figure 3).
It seems that the median line has now recovered its magnet role and serves again as a symmetry axis.
We have purposely omitted drawing a minor down-sloping pitchfork, having an anchor on the highest high, just above the last upper 50% Fibs line. It would probably have described the local market very well. But, we didn't do it because adding it to the chart would have made it too crowded.
Conclusion: If we were to have to evaluate the efficiency of the pitchfork to describe the market flow, on a scale from 1 to 10, we would give it a 9.5.
Description of the Fifth Variable Anchor Set-Up (14.6 % and 14.6% T / P Cartesians)
Figure 8. The pitchfork in this chart is our fifth variable anchor version. The anchor location is at a time / price Fibonacci intersection.
The sixth anchor location (fifth variable) example illustrated in Figure 8 uses a variable p0 pivotal anchor established at the confluence of the 14.6% time Cartesian coordinate and the 14.6% price Cartesian coordinate. A careful observation of the context of the chart will reveal whether the pitchfork will optimally describe the market flow:
The slope of the drawn ascending pitchfork is now up around 30°.
The market flow is almost encased in the pitchfork's main body, with the exception of the last down gap.
Both descending opening gaps of the terminal portion of the local market have their specific roles (Gaps n° 1 and 2 -- not labeled here but identical to those of Figure 3).
It seems that the median line has now recovered its magnet role and serves, again, more or less, as a symmetry axis.
We have purposely omitted drawing a minor down-sloping pitchfork, having an anchor on the highest high, just above the median line (ML). It would probably have described the local market very well. But, we didn't do so because adding it to the chart would have made it too crowded.
Conclusion: If we were to have to evaluate the efficiency of the pitchfork to describe the market flow, on a scale from 1 to 10, we would give it a nine.
Description of the Sixth Variable Anchor Set-Up (50 % and 14.6% T / P Cartesians)
Figure 9. The pitchfork in this chart is our sixth variable anchor version. The anchor location is at a time / price Fibonacci intersection.
The seventh anchor location (sixth variable) example illustrated in Figure 9 uses a variable p0 pivotal anchor established at the confluence of the 38.2% time Cartesian coordinate and the 38.6% price Cartesian coordinate. A careful observation of the context will reveal whether the pitchfork will optimally describe the market flow:
The slope of the drawn ascending pitchfork is now up around 45°.
The market flow is almost outside the pitchfork's main body.
Both descending opening gaps of the terminal portion of the local market chart are now almost encased in the pitchfork's main body and have their specific roles (Gaps n° 1 and 2 -- not labeled here but identical to those of Figure 3). They are both located outside the body of the main pitchfork.
It seems that the median line has lost, for now, any kind of role. This is only normal because the median line yielded, for the moment, all its roles to its acolytes, the warning line and the upper 50% Fibs lines.
It is odd to observe that, in spite of the median line's principal and un-contested roles, this variable anchor location version has completely eliminated the ML's functions. However, as with a grafted organ, its acolytes took over, and the obedient market flow follows them.
We can observe that all the warning lines and the lower 50% Fibs lines constitute, in a more or less pronounced manner, support or resistance...as far as the chart can contain...up to the third warning line (WL-3) and the last lower 50% Fibs line.
If we were to have to evaluate the efficiency of the example n°7 pitchfork to describe the market flow, on a scale from 1 to 10, we would give it a nine.
Conclusion: Out of the seven examples, we strongly plead in favor of example n° 5 (refer to Figure 7). This is because:
- The contextual and local market flow is almost completely encased in the pitchfork's main body
- The median line plays an enhanced role
- The channel formed by the ML and U-MLH is long lasting, and there are two obvious gap opportunity trades
- Most of all, it exhibits a most optimal market flow description
*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.
