Subscribers to Coghlan Capital services are looking at numerous charts of different vehicles across various timeframes. Until now I have been showing one particular GC 240 chart but wanted to add another which is also showing good harmony with the all-important path of price.
Chart 1 shows the coordinates of the pitchfork with the A being the swing high in late October. Note how the angle of the handle is very much in tune with the descending price even before we reach the B and C coordinates.
The validation of this fork came very quickly with the Upper Parallel touch in the first green circle and the decline to support at the Median Line.
The more detailed Chart 2 shows how price, having found support at the Median Line, rose first of all to slight resistance at the Quartile and then once more to anticipated resistance along the Upper Parallel.
We only look to trade in the direction of the fork and because this is a downsloping fork we would only look to trade short. A short could have been taken by aggressive traders in the second green circle with a cash stop above the high of 1251.7. A more conservative short could have been taken in the area of the third green circle – short at 1247.6 with a stop above the previous high of 1251.7. If that opportunity had been missed the fourth green circle and a short at 1244 with a stop above the previous high of 1247.6 would have done the trick.
Price fell strongly away from the Upper Parallel and through potential first support of 1225.7 at the aforementioned Quartile. Because this move through potential support was so strong it is likely that the trade would not have been closed at this level, but would have been held in the hope of a move even lower. Price also moved strongly through the Median Line which would have been the next area of likely support – again the short would probably have been held in the hope of a continued move lower.
The third likely area of support was the lower Quartile, shown by the second red arrow, and this was where support was found and where at a price of 1186 the trade would have been exited.
Median Line Analysis using pitchforks is a methodology that allows us to predict areas or lines of support and resistance with extreme accuracy. It sounds simple, but the key to the analysis is correctly finding the path of price. By using the lines of the pitchfork and watching the strengthening and weakening of trend along these lines we are able to gauge the likely supports and resistances along this path of price.
Hopefully I have shown how the early identification of a pitchfork being in harmony with price would allow one or more profitable trades to be taken with very little risk to capital. In this case a 1244 short with a $4 stop could have led to a $58 profit in GC. By looking at different forks across different timeframes we are able to closely monitor the path of price and to correctly predict likely areas of support and resistance.
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