Monthly Archives: March 2014

Establishing the Trend – NZDJPY 240 min

When making use of Median Line Analysis we are looking to establish the path of price or the trend that price is following. We define this move by means of the pitchfork. I recently cleared my NZDJPY 240 minute chart and looked to draw it again from scratch. What was very apparent were the three pivots that could be used to anchor the pitchfork as shown in Chart 1.

Chart 1:

cchart1-nj240

What was immediately apparent to me here was the fact that the angle of the pitchfork was already showing validation along its lines even before the BC leg. By drawing parallel lines back from the fork one could see that price was continually touching and rejecting along the path described. Clearly this was an early indication that we had indeed established the correct path of price.

Chart 2 shows the movement of price after the BC leg had been drawn. The first thing to catch my eye here was the two highs joined by the puce line. They were clearly in the line of the fork and price and price fell sharply away from them. Obviously they occurred before we had established the C point so were useful not as predictive tools but rather in confirming in retrospect that the fork was potentially valid. The proper confirmation came from the Median Line touch and rejection shown in the first red circle. By the time price had found resistance here and fallen away we would have been confident of the validity of the pitchfork and would have been prepared to use it to place trades.

Chart 2:

cchart2-nj2

One such trade could have been taken along the Sliding Parallel defined by the two green circles. The first touch established the potential of the Sliding Parallel but it was not until we saw the action at the second touch that we would have been convinced that it was a proven support. If one had taken the trade at the second touch one would probably have looked to close it at the Median Line which had been established as resistance by the first red circle. Experienced traders might have tightened stops and looked to see if price pushed through the Median Line to establish a higher line of resistance – this is precisely what it did and the lien is defined by the two smaller red circles.

We had seen a raising of resistance so it was not unreasonable to expect a raising of support. As price retreated from resistance we can see two higher dotted lines of support in the angle of the fork – the first shows three or four bars finding support along it whereas the second shows a couple of dozen. Note how this raising of support is beginning to step up along the line of the pitchfork – the red arrows show a line of resistance along the Median Line appearing to breach and now to become support. Resistance becoming support along the line of the pitchfork is considered bullish in the same way that it is so viewed when it occurs along the horizontal. I shall be watching to see if this new line of support along the Median Line continues to hold and if so will be looking for price to first of all reach resistance along the line of the two red circles. The stepping up of support would lead me to expect resistance to be raised as well and I will be monitoring this line with a view to this happening. If however price turns to the downside without reaching this line of resistance then I will watch the various established lines of support to determine whether we have a change of behaviour and a weakening of trend.

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Change of Trend – GBPNZD 240 min

Having previously shown a chart of the GBPNZD 60 minutes I thought I would show what we are seeing in the bigger picture of the same pair. Chart 1 shows how we have been following the GBPNZD 240 minutes since late September 2013. The blue pitchfork was drawn to the upside and succeeded in delineating the path of price of this vehicle. Early validation of the blue pitchfork came in late October when price moved up to and found resistance at the Median Line before falling away and encountering support along the Lower Parallel.

Chart 1

chart1-gn240

In late November we saw price react away from the Upper Quartile of the fork – this was the highest point of the fork that it in fact reached. The next highs in late December and at the beginning of February were approximately the same levels horizontally but were nowhere near as high in the fork as the first one. The late December highs only reached to between the Lower Quartile and the Median Line whereas the February high only just managed to breach the Lower Parallel. So in terms of the pitchfork we are seeing lower highs – a lowering of resistance.

This would make us wary of continuing support, as a lowering of resistance often means a lowering of support. We were keenly aware of the line of support provided by the Lower Parallel of the blue fork as shown in the series of red circles. In early January we noted that price dipped beneath this Lower Parallel and then came up to touch it from underneath. When we saw a line that had previously been support becoming resistance we were not at all surprised to see a move to the downside in this pair. There were two further tests on the underside of the blue Lower Parallel in late January before price started to fall away in early February.

Chart 2 shows the pivot points which we used to draw the red pitchfork to the downside in order to define the new path of price. One further thing to note is the blue Warning Line marked by the series of green circles. A Warning Line is a line drawn outside an Upper or Lower Parallel at a distance of 50% of the width of the pitchfork. So the distance from the Median Line to the Lower Parallel is the same as from the Lower Parallel to the Warning Line. On this occasion the first six green circles show that this line provided support whereas the last two green circles show where this support became resistance – once more indication the likelihood of a further move to the downside.

Chart 2

chart2-gn2

The validation from this fork initially came from the support just above the Median Line as shown by the three upwards-pointing red arrows. We looked for further validation and found it in the line of resistance shown by the series of four downwards-pointing red arrows. This resistance was also a line we were flagging as a place to take a short. Even a short at the fourth red arrow at 2.0065 would have seen a massive move to the current low of 1.9157

We watched price move away from this Sliding Parallel  – through potential support along the blue dotted Sliding Parallel – and in early March we noted that resistance had lowered from this red Sliding Parallel to the dark red line indicating the Upper Parallel of the new pitchfork. We also watched as the support we had seen along the thick purple Sliding Parallel turned into resistance and we have now seen a series of five exact touches and rejections of this line from underneath. I will continue to monitor this resistance and also look to see where price finds support along the line of the pitchfork – I will monitor the dashed red Quartile and also the dotted red Sliding Parallel to note any change in the level of support within the pitchfork.

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Identify the Trend – GBPNZD 60 min

We use pitchforks as much as anything as a visual aid to delineate the path of price. One can very quickly tell if one has correctly found this path by watching the early action of price along the designated lines of the fork. In this case it allowed us to follow the 1000+ point decline of the pair from the A at just over 2.0200 to the low in the first blue circle at 1.9157.

Chart 1

gbpnzd60-chart1

Even though the pitchfork is relatively narrow it has contained the strengthening and weakening of trend as it made this considerable move to the downside. By anchoring the pivots at the high-low-high points shown we effectively produced action/reaction lines that derive from prior action of price.

To establish whether or not we have found the all-important path of price we look for early indications of activity along the angle of the pitchfork. This does not necessarily have to be along the lines of the pitchfork itself – it just has to be along the angle of the pitchfork. In this case the red arrows show a series of supports along the Median Line of the fork as well as resistance along the Quartile. This would be enough to ensure we pay attention to the movement of price along this fork, with proper validation coming in the green circle when we saw a number of very precise touches on the Upper Parallel of the fork.

Chart 2

gn2-chart2

Not only would these touches confirm that the pitchfork was delineating the path of price but they would provide an extremely safe entry for a short to be taken. Chart 2 shows a close-up of the green circle with the red arrow showing where an entry could be taken at the third touch of the line at 1.9792. The purple horizontal shows the prior high at 1.9804 behind which a stop could be placed. Note how we do not enter a trade on the first touch of a line but instead wait for the line to prove itself and then enter on a subsequent touch.

The target for this trade would initially be the Median Line where the first touch was at 1.9642 though of course further lower targets could have been reached. Trades can be taken along the angle of the pitchfork by way of Sliding Parallels – internal or external lines that follow the path of price we have discovered – one does not have to wait for action to take place along the drawn lines of the fork itself.

One further thing I am following is the potential stepping up of support in the angle of the fork as shown by the three blue circles. In the first one support was found at the Lower Parallel, in the second one at the Median Line and potentially in the third one at the Quartile. A stepping up of support in the line of the fork implies that there may be pressure on the line of resistance – in this case the Sliding Parallel above the Upper Parallel and I shall monitor further action to see if this leads to a change of behaviour in the path of price.

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I recently hosted a webinar looking at non-dollar forex pairs – it is available to watch at this link:
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Clearing the Decks – EURJPY 240 min

I like my charts to be as “clean” as possible which is why I do not clutter them with fibs, moving averages, RSI, MACD etc. But every so often I feel the need to clear the decks and start again from scratch – this was the case recently with the EURJPY 240 min chart. We had been following this pair’s strong rise since the middle of last year but the chart needed some cleaning up.

ej240-chart1

Chart 1 shows a cleared chart of the last few months’ moves of this pair and what is very apparent from it are the three circled pivots that we can use to anchor a pitchfork. Remember that what we are looking to do is to find and follow the path of price. Once we have done this we can monitor the strengthening and weakening of the trend along this defined path.

ej240-chart2

Chart 2 shows a “normal” Andrews’ pitchfork drawn from the three pivots that we had previously identified. The steepness of the fork immediately stands out, and it is somewhat at odds with the way that price is in fact moving. There is potentially some validation to the fork we have drawn – the arrowed action along the Median Line of the fork for example. Also note the Sliding Parallels both above and below the Lower Parallel. I suppose this is what one could call “close, but no cigar…”

ej240-chart3

Chart 3 shows a Modified Schiff pitchfork drawn from the same three pivots and to my eyes is a far better representation of the all-important path of price. The Modified Schiff moderates the incline of a pitchfork and is drawn by moving the origin of the pitchfork 50% of the way in both price and time from the A pivot to the B (or next) pivot.

Clearly this pitchfork has far more validation – action along the angle of the pitchfork – than the previous one. We can see some activity at the Median Line just after the BC axis, numerous red arrowed touches along two Sliding Parallels and a very precise Median Line touch and rejection as shown in the green circle. Putting all this together we can be confident that we have correctly identified the path of price and delineated it by means of the pitchfork. Having done this we can monitor the strengthening and weakening of trend along the angle of the fork – this information can be used to trade the pair as it continues to move along the defined path.

If you would like to find out more about our analysis or services please follow the link:
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I recently hosted a webinar looking at non-dollar forex pairs – it is available to watch at this link:
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Updated CHFJPY 60 min

I wanted to take another look at this chart that I first presented a number of days ago. As I have stated a number of times before, what we are looking to do is to establish the path price and to define it by means of a pitchfork. What Median Line Analysis allows us to do is to predict areas or lines of support and resistance with great accuracy. Even though this is a narrow 60 minute pitchfork, originating in early February, its lines neatly show the strengthening and weakening of the price as we follow the correctly established path.

cj60

What we are looking for is action along the angle of the fork – it is not so important whether it is a Median Line, a Quartile or a Sliding Parallel nor does it matter if the action takes place within or without the fork as what we are looking for is what happens along the line of ascent of the fork.

To illustrate this you can see that price topped out in the first red circle a couple of pips above the Upper Parallel. You can then see that price fell away and clearly started to step down in the fork – there are a number of occasions where a line of support becomes a line of resistance as we follow price lower and eventually to and eventually beneath the line of the Lower Parallel.

When we do find support it is noticeable that once again it is in the line of the fork – note the two green circles denoting the support along a Sliding Parallel. At the time of the first green circle we would not know that we were in fact forming a Sliding Parallel, but on seeing price move higher from the low we would draw one from that point and would be mindful of it should price return to that level. This is indeed what it did in the second green circle and once we had seen price stabilise and then move higher from this line we could be confident that we had established and indeed found support along what was now established as a Sliding Parallel,

We don’t only use pitchforks in our analysis and trading. Note how the puce downtrend line had become a line of resistance with a number of touches and rejections as shown by the red circles. When price did eventually breach this line, note also how it came back to find support along it as shown in the last red circle.

One further thing to follow is how both support and resistance are moving higher in the fork once again. Support has moved up from the Sliding Parallel denoted by the green circles to the one drawn as a solid red line just under the Lower Parallel. Price has moved strongly higher from here and the prior resistance along the Quartile has already been breached. I will look to see where support and resistance next establish themselves and be mindful of the strengthening or weakening of trend along the established path of price.

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I recently hosted a webinar looking at non-dollar forex pairs – it is available to watch at this link:
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Across Timeframes EURAUD 60 and 20 min

I have written a number of times about the importance of finding and following the path of price, delineating it by means of a pitchfork and following the strengthening and weakening of trend along this path of price. What I would like to concentrate on here is the importance of looking across timeframes – not only to establish the path of price but also to help in taking trades.

Chart 1:

ea60

Chart 1 shows the EURAUD on a 60 min timeframe. The low in early January to the high in late January and to the next low in mid-February gives us the very obvious swing points from which we draw our pitchfork. Until the pitchfork is validated by action along its line of ascent we do not know whether or not we have indeed found the path of price.

There was a touch on the handle before the BC line, but until the close approaches (circled in green) to the Median Line and the Lower Parallel there was no particular reason to watch this fork. Again it was not until the arrowed action along the Lower Parallel that it really started getting attention. You can see the series of supports provided by the Lower Parallel as well as the resistances provided by the dotted Sliding Parallels.

The touches on the lower of the two Sliding Parallels – the red one – were certainly something worth taking note of because the evidence was mounting that we had found a channel in which price was running. We had the Lower Parallel as support and this Sliding Parallel as resistance.

A long entry could have been taken from the Lower Parallel with an expectation of reaching a target at the Sliding Parallel. In fact what happened at the last red arrow is that price did indeed take off from a low of 1.5273, pushed through the red Sliding Parallel at 1.5385 and moved higher to the next anticipated resistance at 1.5488 – the blue Sliding Parallel from the last high in the fork.

Chart 2:

ea20-2

Looking at Chart 2 you can see the same vehicle but on a 20 min timeframe – this shows that it is an Unmodified Schiff pitchfork with its A at the mid-February low. This is a variant where the fork is drawn from a point 50% of the distance in price between the A and the B.

Chart 3 shows this fork in more detail and it is easier to see that the path of price has been correctly identified in that supports and resistances are to be found along the line of the pitchfork. Once more, the Lower Parallel provides support – a couple of spikes beneath (green circles) are caught by the dotted Sliding Parallel. You can see how price found support for several bars at the Lower Parallel before moving sharply higher.  It moved above the Quartile which had provided some resistance and above the arrowed Sliding Parallel. Indeed a case could be made for the support emerging at the last arrow to be evidence of a line of resistance becoming support.

Chart 3:

2014-03-01_0900-3

Price has now found resistance at the Upper Quartile where it had found it before and we will watch to see how price strengthens and weakens along the trend delineated by these two different forks on different timeframes.

Chart 4:

4

Chart 4 shows the two charts overlaid on a 60 min timeframe. When you have price moving precisely along lines that are almost identical from more than one fork you can be pretty certain that you have correctly established the path of price. I think it clear in this case that we have done so and I will continue to watch both forks across the two timeframes.

If you would like to find out more about our analysis or services please follow the link:
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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