Pitchfork Tool Strategy
One of my most traded strategies is the Pitchfork Tool strategy. Why do I like it so much? Well firstly, it was formulated through the research of a very smart man, Mr Alan Andrews, who, over years of testing, documented that when you draw a pitchfork tool on a trading chart, it will make the median more than 80% of the time!
So, does this apply to every single pitchfork you place on your chart? Absolutely not! We only take trades from ‘proven’ forks. Success in forex after all is about selectivity in the trades you choose!
But Andrews’ pitchforks, and the pitchfork tool, gives us a really good opportunity to grab precision entry trades, and trades that are likely to run our way (at least for a time!)
Pitchfork Tool Strategy Benefits
- 80% Plus Win Rate When Traded Correctly.
- Precision Entries, means you can use a smaller stop loss, and a larger lot size for the same risk percentage.
- Simple to learn.
- Traded easily on the go.
At the end of this article, you will see I have recorded a video which demonstrates exactly how to draw forks using the pitchfork tool and how to trade them, but here I have broken it down in text also (for us old school lot who still like a written guide!)
Much of this is down to personal preference, some traders like to use a slightly larger stop loss, giving the trade more room to ‘breathe’ however, in my humble opinion, I much prefer a small 10 pip stop loss when the first trade begins.
This is for a couple of reasons.
Firstly, it allows you to have a larger lot size for the same risk percentage to your account (Go play around with our lot size calculator to check this out) but also, if my fork is placed correctly and proven, I should not need a large stop loss.
So generally, my risk management works like this, when I get my entry bounce (I will talk about this shortly) I enter the trade and place a 10 pip hard stop loss.
However, very rarely will I actually use this full stop loss. We go for large wins and small losses here! What I also do, is draw a trend line, starting from 5 pips below/above entry price, and following the parallel of the fork.
In this example, you can see if I was trading this fork on a buy, the red line starts 5 pips below the entry point and travels up parallel to the fork (This actual fork is not yet tradable, as we are waiting on a bounce to prove it’s legitimacy, however, whilst waiting for your bounce, you can draw on this trailing stop line in preparation.)
Using Trading View, you can set an alert on this line once you’re in the trade, and that will alert you via sms, email or pop up when price crosses this line, informing you to exit the trade.
The great news here, is that as price moves in our direction, our stop loss line is too, so eventually (even if price does not make the median) we are stop profited out, rather than taking a loss!
So that is how I work my risk management in a fork trade!
Using The Pitchfork Tool
Once you have mastered using the pitchfork tool to draw forks, then you have mastered the most difficult part of the strategy, from there you can simply sit back and wait for your bounces.
But how do you draw a pitchfork?
Well firstly, most trading platforms come with a pitchfork tool, making life MUCH easier!
Some platforms have you draw the swing high/low first, and then pull back to the previous swing, but I use trading view, which allows you to identify the previous swing first. (If you’re struggling with this section, watch the video at the end of the article for a demonstration.)
When drawing an upward facing fork, your process will be:
Swing Low – Swing High – Swing Low
When drawing a downward facing fork, your process will be:
Swing High – Swing Low- Swing High
You will know if your fork is drawn correctly, as to whether it points in the correct direction.
Ok, so now you have used the pitchfork tool and drawn your fork, let’s discuss entries.
First rule, on an upward fork, we only trade buys (buy bottoms) and on a downward fork, we only trade sells (sell tops). Remember, selectivity is key to success.
Why do we do this? Well if we are in a buy on an upward facing fork, even if price keeps testing the lower parallel over and over, eventually we will be in profit.
So rule 1: On an upward fork, your waiting for a bounce on the lower parallel, on a downward fork your waiting for a bounce on the upper parallel.
You must wait for this bounce, to confirm that price is conforming to your fork, and ideally you want a nice clean bounce (if price is playing around the line instead of bouncing straight off it, this would not be a select trade), once you have a bounce and a couple of pips pullback from there, you can enter the trade! 7
You can also enter from a median bounce, but this is a little more advanced. If you want to enter from a median bounce, you must have also had an outer parallel bounce previously to confirm the fork is valid. But this is one of the benefits of this strategy, is one fork can produce multiple good trades.
With a median trade, you ideally need to make sure you are still buying on an upward trend, and selling on a downward one. So an example would be, price bounces of the lower parallel, comes up to your median and crosses it, later it comes back an retests the line, and continues its upward motion (this would be your median entry).
Later as you become more experiences, you may trade the median bounce downwards, but for now stick to buying and selling within the fork direction.
Remember, you don’t have to sit and watch for bounces, you can set alerts on the lines and just head on over to your computer when you get one!
Watch the video above to see a live demonstration of the techniques I have talked about above. Don’t forget to subscribe to the Youtube channel while you’e there!