Median Line Analysis using pitchforks seeks to identify and define trend at an early stage so that analysts and traders can then follow the strengthening and weakening of price over time. By determining the path of price we are able to anticipate likely areas of support and resistance with great accuracy.
In this instance we are following the EURAUD on a 60 minute timeframe and looking at it in the light of the context that our larger charts were giving us. In terms of the bigger picture we were in an area of potential support so honed in on this 60 minute timeframe in order to look for evidence of a change of behaviour.
We were watching the resistance provided by the lines of the red fork. Note that there are two lines marked by a series of red circles – we followed as the resistance provided by the lower of these lines turned into support and then again as the same happened along the higher of the two lines. Price was effectively “stepping up” in the line of the fork – a bullish sign as resistance turned in to support. The process continued along the dashed red quartile as shown by the blue circles eventually moving through the highest line of resistance in the red fork.
Given this change of behaviour we looked to see if we could draw a pitchfork to define the new move. Using the distinct A, B and C pivots we looked to see if the new blue fork could be validated by the action along its angles. The first indication that it was working came from the touches along the handle, indicating that the angle of ascent was indeed worth following. Note also the resistance along the puce Sliding Parallel – remember that it is not the lines of the pitchfork itself that are important, rather it is the angle in which it is drawn.
Price retraced from this anticipated resistance and moved all the way back t the Lower Parallel of the fork. The action at the first red arrow further validates the fork – note how price spiked to support and then reversed. Even though we saw this line violated on the next approach we were still watching to see the effect of the Lower Parallel when price reached it again at the second red arrow. Three solid bars finding support along this line of previous activity have led to a move this morning from 1.4462 to a high so far of 1.4538 – not a huge move but one that could have been taken with a tight low-risk stop.
I will continue to monitor the movement of price within this pitchfork, looking to follow the strengthening and weakening of trend. If price pushes to a higher resistance in the angle of the fork and support steps up as well, then we will be looking for higher prices. If however we find a lowered resistance then it is likely our support will be under pressure and we may expect lower prices in the future.
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.
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