It has been said that we are pattern seeking mammals in that we look to make sense of the world around us by looking for rhythms or patterns in what we see. This is certainly true when looking at the chart of a financial vehicle – we are seeking to understand what is happening by fitting it in to a pattern that we can comprehend and follow.
Chart 1 shows a blank chart of the GBPAUD on a 60 minute timeframe. The moves are obvious but there does not seem to be much rhyme or reason behind what is happening – certainly there is not enough information with which to make a solid trading decision. Median Line Analysis seeks to give a structure to these moves by quickly establishing the path of price and delineating it by means of a pitchfork. We are interested in the angle of ascent or descent that price is following and will look to trade off the strengthening or weakening of trend.
Chart 2 shows what happens when we apply a pitchfork to the vehicle – we look for a distinct A, B and C to make the pivots of the fork, and immediately what appears makes sense of the moves that we have been following. Validation of this being the correct path of price comes from the activity along the line of the fork – the red arrowed touches along the Upper Parallel are evidence of this. Note also how support appears along the line of the arrowed Quartile – indeed if anything it has stepped up to here in the fork from the lows in late May.
Remember that it is the angle of the fork that is important not the lines of the fork itself – the fork is not inviolate or sacrosanct – and if we are happy that we have correctly defined the path of price we will not discard the fork just because one of its lines has been breached. That is the case here, where price moves through the previous resistance of the Upper Parallel and has potentially found a new line of resistance in the circles along the Warning Line. (A Warning Line is drawn equidistant from Median Line to Upper Parallel but outside the Upper Parallel.) I am also taking note of the support and resistance, evidenced by the last two red arrows, along the line of the Outer Quartile.
When we see evidence of price showing a change of behaviour we will look to define this by means of a fresh pitchfork. In this case the breach of the red Upper Parallel led me to the blue pitchfork shown in Chart 3. Again I used a distinct A, B and C as my pivots and I am currently looking to see if there is action along the angle of the fork in order to validate it. I have circled two possible areas that may do this – potential resistance along the Median Line and potential support along the Quartile. It is too early to say that this is a proven description of a new path of price but it bears following to see what develops.
Chart 4 puts these two pitchforks together and this is what I am currently following in order to track price on this timescale. I am keeping an eye on the potential red circled resistance along the red Warning Line and also the green circled support along the blue Quartile. Should the red Warning Line be breached my attention will then turn to the next potential line of resistance along the blue Median Line.
I will be watching for supports and resistances along the lines of both forks to see which one is in control. Be aware that we may find one fork defining supports and the other defining resistances – both need to be followed. I will also be looking at this chart in the context of larger 240 minute and Daily charts.
Median Line Analysis using pitchforks seeks to provide order in the moves of financial vehicles. The methodology allows us to define the path of price and thereby look for anticipated areas of support and resistance. By following the strengthening and weakening of trend along these lines we are able to analyse and trade the vehicles using high-probability, low-risk strategies.
The Cross Pair Analysis service uses Median Line Analysis to cover a dozen non-US Dollar pairs on a daily basis, looking at context via Weekly and Daily charts and in detail via 240, 60 and, sometimes, 20 minute ones.
I recently hosted a webinar looking at the Cross Pairs – it is available to watch at this link:
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