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Mikula Forecasting
Company: Trading Strategy #1.
====================
Written by: Patrick Mikula CTA
Copyright (c)2003-06 by Patrick Mikula All Rights Reserved.
(Please to not copy or foreword this article).
Mikula Forecasting Company
P.O. Box 152672
Austin, TX 78715-2672
USA
www.MikulaForecasting.com
support@MikulaForecasting.com
====================
MarketWarrior 3.0 Trading Strategy #1: The Pitchfork
Pinch
Since publishing the book "The
Best Trendline Methods of Alan Andrews and Five New
Trendline Techniques" there
have been a lot of requests to show how to use the Pitchfork
or the Super-Pitchfork with the traditional technical
indicators. Most traders who have extensive knowledge of the
traditional indicators do not want to use the
Super-Pitchfork separately, instead they want to bring the
Super-Pitchfork into their toolbox and use it with the
indicators they currently have. I am going to be
writing a series of trading strategies which shows how to
combine traditional indicators and the Super-Pitchfork. In
this strategy the indicator Bollinger Bands will be used
with the Super-Pitchfork. The name of this strategy the
"Pitchfork Pinch" came about because the relationships
between the Super-Pitchfork and the Bollinger Bands in this
strategy were first noticed at the critical times when the
Bollinger Bands would pinch together. The Bollinger Bands
will sometimes pinch close together during low volatility
times just before a price breakout. Since those original
observations were made the correlation between the
Super-Pitchfork and the Bollinger Bands have proven to occur
is many situations not just the low volatility times when
the Bollinger Bands pinch together but I have left the name
of this strategy the same.
The Bollinger Bands in this example have been set to use
a 40 period look back and the exponential moving average.
The Super-Pitchfork is set to draw both Warning Lines and
Reaction Lines. When studying the Bollinger Bands it can be
seen that market pivots will often form on the upper and
lower Bollinger Bands. The problem is there are many small
pivots on the upper and lower Bollinger bands which do not
transition into market swings. By using the Super-Pitchfork
we can identify some of the most tradable pivots which form
on the Bollinger Bands. Below is a picture of a stock chart
for Wellpoint Health Network symbol WLP. On this chart the
Bollinger Bands and the Super-Pitchfork have been applied.
There are two pivots on this chart which have been circled.
The pivot labeled A occurs at an intersections of three
lines, the lower Bollinger Band, the Super-Pitchfork Median
Line and the first Super-Pitchfork Warning Line. The pivot
labeled B occurs on two lines. The first is the lower
Bollinger Band and the second is the Super-Pitchfork upper
parallel line. When the price reaches the upper or lower
Bollinger Band check to see if one of the lines from a
recent Super-Pitchfork also cross over that location. If
this occurs watch closely for a pivot. In this example the
two pivots would be very good setups to watch for pivots.
The next example below shows the March 2004 Corn futures
contract. The Bollinger Bands have been added to the chart
and a Super-Pitchfork has also been added. Notice the white
circle and the letter A in the upper right corner. Inside
this circle the price is on top the upper Bollinger Band and
the price is also at the intersection of the Median Line and
the Warning Line. So we have four items coming together at
one point. This indicates that there is a a high probability
of a reversion at this time.
MORE:
To see the second half of this article with
more examples and setups see the version of this Strategy 1
on the MarketWarrior
owners page.
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Mikula Forecasting Company
P.O. Box 152672
Austin, TX 78715-2672
USA
====================
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Mikula
Forecasting Company: Trading Strategy #1