Pros
- Seems like it can give clues to change of trend before a trendline break.
- Can give an early indication of the trajectory you should expect
- Everybody is looking at channels and trendlines, this gives you something that less people are taking signals off of.
Cons
- Very subjective (but aren't trendlines too? I use them all the time)
- Can't make it fit on a lot of charts (but again, same could be said for trendlines)
- Price can really push against the edges and still not really break the channel, so by the time you get a clear signal prices have already made a significant move (either against your, or away from a decent entry point)...again, same could be said for a lot of indicators.
Use
- Seems particularly useful for strong, linear trends, but the lines also seem to show something the eye can see on its own.
- Gotta play around to see what's best fit. If midline tracks price that's a pretty good indication of a valid pitchfork (only the starting point is based on an actual high or low, and the second point is really just a midpoint of two actual price points, so it's kind of a made-up line...so if the stock moves in line with that it means there's significance.
- Not going to work for a lot of stocks. Stick to using with those where it seemed to be useful in the past.
- Best to use for tend following in same direction of pitchfork, or for identifying trend changes? Not sure yet.
- Might have to ignore certain extreme price points, like with trendlines.
- Points #1 and and #3 should be where the primary trends start...so not necessarily an exact high or low. For example, in an uptrend, point #1 could be where the break out starts instead of the low of the consolidation, #2 should be the intermediate high, but #3 should be where the next rally begins, which may or may not be the low of the correction/consolidation phase.
Some charts I used to play around with this. Some seem pretty valid and useful. Others are pretty questionable.
Here's Crude Oil Monthly. Couldn't get many to fit well, and even with those that did below how sure how useful it'd be for actual trading. Interesting how prices followed the trajectory of the green pitchfork for a while, but on the underside of it. Would have been tough to use for trading, but after the fact seems significant.
Here's the dollar index. Would have been useful for that top, and also the change of trend. But it was grinding against the upper range in the down move, so easier to read after the fact than in the moment.
Dollar Index Daily - Has moved pretty far out of its upwards channel. Is this an indication the rally is over for now? Some other things tell me so, so interesting that this confirms. Again, looks like the kind of linear move that the Pitchfork is most useful for.
Gold Monthly -The two recent touches of the underside of the midline help validate this in my view.
Another way to draw the monthly. Also confirms the uptrend, but shows these can be drawn multiple ways. Here it happens that confirm the prior. Not always the case though. The confirmation I'd say helps validate the indicator for GLD.
Weekly - Very useful for the 07 rally. Would have had you riding up and it broke at the top (giving some back of course). These linear moves are where this works best I think...but this is also looking after the fact. Can we use this as an expectation to project the future trajectory?
Also notice it works when used on the MACD. RSI not so much though. Makes sense since these indicators are just filters of price data.
Daily - Pitchfork would have done great job letting you ride the recent rally. Notice the overthrow then climax top. Like any kind of channel waiting for a break meant you would have given a lot back, but on the other hand, it would have definitely told you to stay away from trying to buy pullbacks once it broke. Good signal that rally wasn't coming back for time being. Consolidating nicely so far. The downtrend pitchfork gave a fake out, but ultimately a good indication that downside had stopped.
GDX Weekly - Price seenm to conform to the uptrend pitchfork really nicely, and the downside break was great signal to get out of longs for time being. Also could have told you to cover shorts/get long after drop of 08. The current pullback has broken higher - interesting because the downtrendline hasn't seen a strong break yet. I'm still checking it out but this is where I think this indicator will really come in handy - tipping you off to a change in trend before the downtrendline breaks (which everybody and their mother is watching), to get you a better entry or exit.
Will this be the new upside trajectory? Price probably needs to make a higher high to confirm an uptrend before we could say so. Again, this would be the real utility of this - a way to project the trajectory of a move, and set trailing stops or change of trend entry points. Trendlines and moving averages are useful, but very commonly watched.
30 year treasuries yields Daily - Pitchfork worked really well to catch trend changes. Might have had one whipsaw in that downtrend, but the ultimate break looks like one of the more tradeable one's I've seen. Giant head and shoulders too. If it breaks higher could see a huge rally in yields. I'm short yield (long Treasuries), based on longer term factors.
30 Year Treasury Yield Monthly - Not sure how valid it is how this is drawn, and I show other charts with different ways to draw this. If valid supports a bearish case for now.
30 Year Treasury Yield Monthly again - just dicking around with some other ones. Seemed to be useful for big picture view, but not great for entries or exits.
Another 30 Year Yield Monthly - Supports bearish case but really on the cusp...trying to poke its head through.
But draw the pitchfork like this and it looks bullish. Bottom line for this Monthly chart - you can draw this a bunch of ways, all of which seem plausible, but they tell very different stories. Not going to put too much weight on pitchfork on the monthly. Look at that bearish engulfing candle though!
Our beloved Dow. Short if it breaks under that pitchfork? Again, these shorter term, linear moves seem to be where this indicator works best.
And the SPY. Looks a hell of a lot better than the Dow...if I wanna short I'd short the Dow, since it's been underperforming to the upside. Could have bought after that first pullback and used this as a channel to trail a stop...so far that strategy would have worked well. If it breaks soon though, figure that, depending on your entry, if you only sold with the trailing stop, you gave a lot back and might not have made all that much. But if it keeps chugging.
Goldman Daily - I've been watching this for the trendline break, which it's poking its head through right now. Using the pitchfork would have given a much earlier signal though.
That's it for now. Going to start incorporating this into my analysis, just as a secondary tool (if even that much). Need to get accustomed to it, but could be good addition to the toolkit. Right now all I really use are support/resistane, chart patterns, candlesticks. Also use, very loosely, moving averages, MACD and RSI (not for signals, just for perspective).
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