mljones

How To Use Andrew's Pitchfork To Find Head And Shoulders

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NSE:TATAPOWER   TATA POWER CO LTD
Here's something I've been using recently with andrew's pitchfork . If you use a 2x extension on the width rather than the pitchfork itself, then it often defines a trend line which helps to identify a head and shoulders pullback.

Ideally the head will go deep into the extension and then the right shoulder tags it after a retrace. The idea is the trade is entered very close to finding the right shoulder, such as using momentum confirmation.

On this chart the right shoulder is found using the RSI curling back upward. Additionally the candlestick signal on the volume indicator finds a bullish green trend bar.

It also is confirmed by the parabolic SAR reversal.

The pitchfork is constructed by finding a sharp movement in the opposite direction of the trend. To find the center point of the pitchfork you using andrew's rules you typically pick a major swing reversal.

I often will instead use linear regression to find a slope that fits the overall trend and make the center line parallel to that rather than having the slope be very dependent on a single trade on the chart. However in this case using the swing low worked for the setup.

This example is a tweak of the chart from "Tata Power: Nice Short-term Opportunity" by techtrail.
Comment: Example using 1.5 extension rather than 2. Idea is head and right shoulder use about same extension line.

Comment: Example showing how it doesn't really matter if the center line is exactly right. You can have several variations of the slope and still use the extension region to find areas where momentum shifts provide meaningful information about a pullback that returns to the trend

Comment: In the original example it also shows how the rule of hagopian can be used to have patience to wait for a head that goes deep into the extension region.

The price 1st pulls upward away from the bottom line but then fails to reach the median line. This invokes the hagopian rule and you expect price to go at least that far to the other side of the bottom line. This yields an area to look for the head.

If price goes to that area and reverses upward then you have a potential head that you can use to validate your final right shoulder candidate.

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