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