Monthly Archives: February 2014

The Unmodified Schiff CHFJPY 60 min

One of the variants of pitchforks that we make use of in Median Line Analysis is the Schiff or the Unmodified Schiff. The most commonly used variant is the Modified Schiff and we use the “un” to distinguish it from this one.

An unmodified Schiff moves the A of the fork 50% of the distance in price between the point of origin and the B. I show such a fork, namely the CHFJPY 60 minutes in Chart 1. The horizontal puce lines show the levels of price at the Original A and the B, with the central line being midway or 50% between them. I have drawn the green verticals in order to show this.

cy60

You can see how the origin of the fork is moved from the A at the lower puce line to the circled A at the middle one thereby creating an Unmodified Schiff pitchfork. this obviously has the effect of lessening the slope of the pitchfork whilst still making use of the very apparent A, B and C.

The action along the pitchfork is clearly demonstrating that we have identified the correct path of price. Highs and lows of price are in the line of the fork and we are therefore able to monitor the strengthening and weakening of trend as we watch the moves delineated by the lines along the angle of the pitchfork.

Early validation of this fork would have come from the initial resistance at the Upper Quartile and the series of supports along the line of the Lower Quartile. We could watch as price rose towards the circled touch on the Upper Parallel with some expectation that this is where it would encounter resistance.

Following the action of price along the fork we see it fall once more to anticipated support along the Sliding Parallel marked by green circles. To be fair, until this second touch and reaction away from the line we did not know that it was in fact a Sliding Parallel, but it was certainly an area that we would be watching with interest given previous action.

Price moved slightly higher from this second touch finding support once more along the Lower Quartile before rising strongly again to previous resistance along the Upper Parallel. Currently we are watching as the Median Line, along which there is both prior support and resistance, seems to be once again providing resistance. We will follow the moves to see if it can regain this Median Line and turn it into a line of support once more. We will continue to observe the strengthening and weakening of trend along the lines of the pitchfork.

If you would like to find out more about our analysis or services please follow the link:
https://www.coghlancapital.com/signup

I recently hosted a webinar looking at non-dollar forex pairs – it is available to watch at this link:
http://www.coghlancapital.com/node/8018

CADJPY 60 min Continued

In the previous commentary I wrote that we use Median Line Analysis to follow the path of price and to show the strengthening or weakening of trend along this path. Chart 1 shows what has happened since that last commentary that was published when price was in the green circle.

Chart 1:

cadjpy

We had watched as the resistance offered by the lines of the validated pitchfork moved lower in terms of the pitchfork. I have drawn a purple line to show the discrepancy between watching support or resistance on the horizontal and watching it in terms of the angle of the pitchfork.

Looking at the first red arrow you can see that this was the highest point in the pitchfork reached by price. The next three red arrows show resistance still in the line of the fork – even though these were horizontally at the same level as the first high we regard them as “lower highs” because in terms of the pitchfork this is what they were.

The last set of three red arrows shows that price breached the horizontal resistance and no doubt breakout traders would have been getting long at this point. By looking at the chart in terms of the pitchfork you can clearly see that resistance has stepped down once more. By analysing the movement of price along the path of price itself rather than along the horizontal we are able to see strengthening and weakening of trend far more clearly.

Indeed if you look closely at the last red arrow you will see that price turned lower from just underneath the prior resistance of the Upper Parallel – it did not quite have the impetus to make it as high in the fork as it had done previously.

As I have previously commented, when resistance lowers it is normal to expect support to move lower in tandem, and this is what has happened here. We were watching the Sliding Parallel with the green circle to see if it continued to provide support. It did not, nor indeed did the Lower Parallel that had previously acted as support as shown in the first red circle. What we do see is that this prior support seems to be becoming resistance as shown in the second and third red circles.

Chart 2:

cj2

As we saw support breaching and price moving lower I drew the red fork to the downside as shown in Chart 2. This has not been fully validated but I am encouraged by the Upper Parallel resistance that we have seen and also by the possible resistance emerging along the angle of the Median Line., and the potential support along the Quartile (although with just one reaction so far it is too early to tell whether or not this is working)

I will continue to monitor both forks and to watch for strengthening and weakening in trend.

If you would like to find out more about our analysis or services please follow the link:
https://www.coghlancapital.com/signup

I recently hosted a webinar looking at non-dollar forex pairs – it is available to watch at this link:
http://www.coghlancapital.com/node/8018

Strengthening and Weakening CADJPY 60 min

I have written a number of times about the use of Median Line analysis to determine the strengthening or weakening of trend. What we are trying to do is to correctly define the path of price and then by monitoring trend we can look to trade the price as it moves along what often seems to be a predetermined track.

In this example we are looking at the CADJPY 60 min chart where I drew a blue fork to the upside once price started to move out of the previous downsloping red fork. The choice of the A, B and C pivot points was fairly obvious and we soon found some solid validation to the fork as price started to find support and resistance along lines consistent with its angle of ascent. In this case the first two green circled supports and the first two red circled resistances were the clinchers.

cj60

Having established that the fork was correctly defining the path of price we then start to look for the stepping up or stepping down of price along the path. When the level of resistance is broken to the upside you tend to find that support will also rise. This happens on the horizontal and also when one is using pitchforks. When a prior resistance on the horizontal is breached and becomes support that is considered to be bullish – once again, the same is true when this happens along the line of a pitchfork. In this instance the third green circle is showing where support has established on the Median Line – previously a line of resistance. It is therefore no surprise when price explodes higher before finding resistance well above the fork in the third red circle.

When price retraces from this spike high it finds support and a considerable bounce once again at the Median Line.  Price moves up and establishes a new line of resistance once more in the angle of the fork as shown by the fourth, fifth and sixth red circles. Note that this resistance is lower in the fork than the previous resistance in the third red circle.

Price returns again from this resistance to the Median Line and indeed in the fifth green circle it finds support only after poking beneath this prior support. Because of this lowering of support and the prior lowering of resistance we were now wary about how high in the forks price would now bounce. Indeed the last three red circles show that resistance has stepped down once more – this time to the line of the Upper Parallel. It follows that it was not a surprise to see prior support breaching to the downside and we are currently watching to see if the dotted Sliding Parallel is able to continue as support. If it does and price moves higher once more I would anticipate finding resistance at or more likely beneath the Upper Parallel.

I hope I have shown how we can use a pitchfork correctly placed along the path of price to detect strengthening and weakening of trend.

If you would like to find out more about our analysis or services please follow the link:
https://www.coghlancapital.com/signup

I recently hosted a webinar looking at non-dollar forex pairs – it is available to watch at this link: http://www.coghlancapital.com/node/8018

 

Opposing but Complementary – GBPAUD 240

Chart 1 shows the GBPAUD 240 and a large blue upfork with its A in March 2013. The validation of this fork comes from the red circled touches along the Lower Parallel and the blue dotted Sliding Parallel. We used this and other forks on varying timeframes to track the path of price up to the highs of 1.9186. Since the end of January we have watched it fall away and have employed both the blue fork and the newer red downfork to monitor this.

chart1-20140214

Chart 2 shows how we did this in more detail and also shows the importance of the green Sliding Parallel throughout much of the move both higher and lower. The highest point that price reached in the fork was when it spiked about the prior resistance of the blue Sliding Parallel – it isn’t so much the spike that is interesting but more where support shows itself on a retracement.

chart2-20140214

The green Sliding Parallel in Chart 2 has a series of red arrows along it showing where it provided support over a period of more than a month. If price was going to continue to move higher in the fork after the spike through resistance we would expect support to manifest itself higher than the prior support of the Sliding Parallel or, at the very least, along it. Instead what happened is that price moved through the green Sliding Parallel and then came up and retested it from underneath. This is shown by the first red arrow pointing down – as is the case on the horizontal, when prior support becomes resistance it is a bearish indicator.

Price is moving lower in the blue fork and the red fork could be drawn using the distinct A, B and C points shown. There was no real validation of this downfork until the action along the red Sliding Parallel marked by the blue circles. I drew this Sliding Parallel from the spike low in the first blue circle and watched for any indication of further action along it. I had warned members to look out for this and it was no great surprise when the line became resistance in the second blue circle. Once more support becoming resistance is bearish and again we watched price move lower.

We were looking for support to materialise in the purple circle for two reasons; the first was that it had proved to be previous support in the blue fork – this can be seen more easily in Chart 1. The second reason was that we were anticipating support along the Quartile of the red fork and perhaps along the Sliding Parallel just beneath it. The combination of the two likely areas of support in the red and the blue forks did the job and price bottomed at 1.8116 before moving up once more.

Observant readers will note that we saw a very slight one bar pause under the blue circled red Sliding Parallel before price continued to push higher. Resistance was then seen at 1.8610 at the second down-pointing red arrow along the previously noted Sliding Parallel.

So by using a combination of an upfork and a downfork we were able to follow and understand the movement of price. Median Line Analysis using pitchforks allows us to accurately predict likely areas or lines of support and resistance with great accuracy as we follow the path of price and monitor the strengthening or weakening of trend. We look to take trades along the way using the levels indicated to us by our analysis.

If you would like to find out more about our analysis or services please follow the link:
https://www.coghlancapital.com/signup

I recently hosted a webinar looking at non-dollar forex pairs – it is available to watch at this link: http://www.coghlancapital.com/node/8018

Following Trend – AUDCHF 60 min

I received an email asking if I would look at the AUDCHF chart which has been in an uptrend for the last couple of weeks since marking a low on 24th January. Chart 1 shows the vehicle on a 60 minute timeframe.

audchf60 chart 1

We watched price move lower from the January 12th highs and when we had three red pivots labelled A,B and C in place drew the red pitchfork to the downside. After finding resistance at the Upper Parallel at 0.8072 price fell all the way to the Lower Parallel to the blue A at 0.7718.

From there price crossed the fork once more before finding resistance at the blue B once more along the line of the red Upper Parallel. This resulted in one final move lower in the pitchfork to the blue C before the raised support in the red fork gave enough impetus to cause price to breach the Upper Parallel.

When price moved out of the red pitchfork there was a clear change of behaviour and accordingly I looked for a fork to the upside that we could use to track and define the new path of price. Using the three blue pivots labelled A,B and C the resulting fork was a variant known as a Modified Schiff whereby the origin of the fork is moved 50% of the distance from A to B.

Validation of the fork came from the Sliding Parallel touches circled in green. Note also how the first of these touches is also an exact touch on the red Upper Parallel that was prior resistance. Resistance becoming support is bullish.

audchf60 chart 2

Chart 2 shows the blue pitchfork in more detail. The first thing to note is how a long trade could have been taken along the green circled Sliding Parallel with very little risk. A trade at the second (double) touch at 0.7866 could have used either a ten point stop beneath these touches or more conservatively beneath the low of the first green circle at 0.7837. The target for this would have been at prior resistance which would be the purple Sliding Parallel at 0.7993.

But note what happened when price reached this Sliding Parallel. It breached it and then came back down to find support along it – the red arrows show this happening. So we have seen support step up from a line parallel to the fork just above the Lower Parallel to one just above the dashed Quartile. Further long trades could have been taken along this new raised Sliding Parallel support with a target at the Sliding Parallel shown by the red circles. Price is still running along the lines of the fork but now it is doing so in a higher channel.

Things change at the last red arrow where the line that was once support became resistance once more. We would have been watching out for this for three reasons. Firstly, resistance seems to be lowering once again from the red circled Sliding Parallel down to the Upper Parallel of the blue fork. Secondly, the support of the purple Sliding Parallel has become less clear cut – price has started to move beneath it before finding support. Thirdly, there seems to be some resistance still in the line of the red fork – note the red Sliding Parallel that I have drawn from the third red circle and how it catches the next highs in its line.

Accordingly when we see clear resistance at the purple Sliding Parallel as shown by the bar marked by the last red arrow we anticipate a move lower in price. This is what happened and price now looks to have found support on the lower Quartile of the fork and seems to be finding some resistance along the Median Line.

Clearly the blue fork is defining the path of price accurately and I will continue to monitor it to show the strengthening and weakening of this vehicle’s trend.

If you would like to find out more about our analysis or services please follow the link:
https://www.coghlancapital.com/signup

On Tuesday 11th Feb I will be holding a webinar looking at non-dollar currency pairs. Registration available here:
https://www4.gotomeeting.com/register/286002607

Art as Well as Science EURCAD 20 min

The use of Median Line Analysis is not a purely mechanistic process but involves a certain amount of interpretation and a degree of licence when drawing the pitchfork.

I have explained a number of times that when we look to define the path of price of a vehicle by means of a pitchfork we first of all look at the direction of the trend and then for alternating pivots from which to draw it. In this example, the EURCAD 20 min chart is clearly in a downtrend so the pivots that we will look for are a high, a low and another high.

Chart 1:

chart1

Chart 1 shows the direction of trend and I have marked the pivots that stand out by means of the red circles. We have a swing high followed by a swing low and then a second swing high. If we use these pivots and draw an Andrews’ pitchfork from them we get the result shown in Chart 2.

Chart 2:

chart2

In this example all seems well for a while as, despite the fork being very steep, price finds resistance at the Upper Parallel on a couple of occasions and falls away to find some support along the line of the Quartile. However the angle is just too steep and it is not long before price steadies and moves sideways and in so doing it moves through the confine of the Upper Parallel and out of the fork entirely. Clearly this fork is not doing its job of defining the path of price.

To meet such circumstances we often use a variant known as a Modified Schiff pitchfork. Such a fork is shown in Chart 3 and we draw it by moving the origin 50% of the way in time and price between the A and B pivots ie the first swing high and the swing low. What this does is to make the angle of descent of the fork far gentler and in this instance we see that the fork managed to contain the movement of price somewhat longer.

Chart 3:

chart3

However it did not do so for long enough and the bottom line is that we have not so far successfully defined the all-important path of price. This is where the degree of artistic licence comes in – by simply moving the origin of the fork to a slightly earlier A we completely change the nature of the chart and turn it into Chart 4 which to my eyes does indeed show a pitchfork that defines the path of price.

Chart 4:

chart4

The blue circled touches on the Upper Parallel and twice on the Lower Parallel undoubtedly validate the fork. We look to see what else it can tell us and I have marked some further touches along the Median Line with green circles – what stands out to me here is the line of resistance along the Median Line turning into support. When that happens along the horizontal we deem it to be bullish and it is no different when it occurs along the line of the fork. What I see is support stepping up in the fork and when support steps up it is no surprise to see resistance doing so too. Accordingly I was not surprised to note that price has started to edge above prior resistance along the Upper Parallel.

I hope I have shown that it pays to look at a chart in a way which is not too mechanical and to allow a degree of judgement or artistic licence to enter the equation when deciding how to best draw a pitchfork to follow the path of price.

If you would like to find out more about our analysis or services please follow the link:
https://www.coghlancapital.com/signup

You may also be interested in the following webinars:

On Thursday Paul Coghlan will be looking at metals, major currencies and indices: http://cod.coghlancapital.com/webinar

On Tuesday 11th Feb I will be looking at non-dollar currency pairs: https://www4.gotomeeting.com/register/286002607