When the GBPNZD 20 min price started to edge above previous highs I started to note a possible change in trend or behaviour and looked to track this by means of a pitchfork.
Chart 1 shows how I tried to do this by initially identifying three swing lows and highs – marked A,B and C – with which to anchor my pitchfork. Having drawn it I then started to look for confirmation that I was indeed defining or following the path of price by means of this fork. I look for how price moves along the fork and whether it repeatedly touches lines drawn along this angle.
In this instance the red circles show a sloppy response at the Lower Parallel and the Median Line and even though price tracks along the Lower Parallel for a couple of days, the touches were not precise enough to enamour the fork to me. It was therefore not a surprise when price dipped beneath the Lower Parallel and moved away from the line of the fork at the red arrow.
I therefore adjusted the fork, using the same three pivots, to a Modified Schiff as shown in Chart 2. In such a pitchfork the A is moved 50% towards the B in terms of price and time. Using this fork it can be seen that the reactions of price to the lines drawn was much more precise – the red circles show exact touches on the Upper and Lower Parallels and gave me confidence that the fork was indeed defining the correct path of price.
Having established this confidence it would then be possible to look to the pitchfork to provide high-probability, low-risk trades in the vehicle. One such trade would have been to get long at the double-tap on the Lower Parallel as shown in the green circle. A long taken at the second touch at 1.9995 could have been protected with a 10 point stop beneath the low of the first touch. The stop would have been moved to breakeven as price moved away from the entry,
As price pushed above the Median Line it spiked higher and fell back – we would take note of this move and draw a dotted Sliding Parallel from previous resistance to mark this. This Sliding Parallel could only have been drawn after a second reaction to it as before that there would be no evidence that it existed. Having drawn it, the long trade could have been closed on a return to the Sliding Parallel resistance at the red arrow in the region of 2.0280.
By adjusting the pitchfork when needed we were able to correctly define the path of price and to use the lines of the fork to take a low-risk, high probability trade – I will continue to monitor the pitchfork and look for additional trades….
Addendum: Since posting the above, there has been a very good example of the way that we can use the proven supports and resistances given by the pitchfork to enter a profitable trade. Chart 3 shows an entry along proven support at the third green circled Quartile touch at 2.0170 with a ten point stop which could have been closed at the blue circle along confirmed Sliding Parallel resistance at 2.0325.
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