Pitchforks are a very popular TA tool and easy to use. However the fundamentals are often glossed over. For example, many beginners and vets don't know that it is based on Normal Distribution which has 3 Sigma Limits. This is commonly referred to as a "Bell Curve". It's a natural rule of thumb used in Statistics and Probability Theory, for all manner of sciences. The 3 Sigma Limits are 3 Standard Deviations from the median line, which is located in the center of the mean distribution of data. For us, this data is price action.
The 3 Standard Deviation on a fork are: 1st STD DEV from -0.5 to +0.5 2nd STD DEV from -1.0 to -0.5 & +0.5 to +1.0 3rd STD DEV from -1.5 to -1.0 & +1.0 to +1.5
The 3 Sigma Limits Rule is also known as the 68-95-99.7 Rule. What this means is, while in a trend, natural price action will:
1) Remain within the 1st STD DEV 68% of the time. 2) Remain within the 1st & 2nd STD DEVs 95% of the time. 3) Remain within all 3 STD DEVs 99.7% of the time.
What about the remaining .3%?
Usually breaking out of the 3rd standard indicates the trend is done, however .3% of the price action can fall outside of the 3 STD DEVs and still continue the trend!
This is a rule of thumb for natural law, but stock market price action can be manipulated! If the price action doesn't fit the Normal Distribution model, then it is likely unnatural. Also, since our data never stops coming, the mean can move over time, while staying in the same general trend; making the previous median lines invalid.If a unnatural amount of your price action is falling outside of the 1st STD DEV, then your original median line is likely invalid. A new pivot should show itself to correct the median.
That could be what's happening here on the chart, if the bear trend continues back into the fork, with so much price action outside of the 3 STD DEVs. You can draw a new pitchfork on the pivot from June to August which would include more price action. I will include that below.
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This actually seems to fit the distribution better, but either case could be made at this point. Trend break or adjusted mean?
I urge anyone reading this to look up the history of the ANDREWS Pitchfork. This guy is rubbishing Alan Andrews in the comments and telling you his own version of what he thinks the pitchfork is. Any of you can use google to verify Andrews invented the pitchfork for trading, taught the action reaction principle over many years; and the technique as he taught it is fully accepted in technical analysis. The clue is in the name…
It has NOTHING to do with a normal distribution. This guy just looked at the bell curve, saw that we have warning lines at standard deviations; and saw that it was called the median line and his imagination ran away with him…
His original idea even mislabels the SD lines as I pointed out.
This idea is a car crash…
MoogzX
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@Great_Reset_Investing, Any literature where i can learn about Andrews Pitchfork in greater detail? Thanks
This guy thinks he's being smart. Firstly, he's conflating two distinct mathematical entities. Pitchforks are based off Newton's Laws and the conservation of energy. SECONDLY AND MOST IMPORTANTLY THIS IDEA IS TOTALLY WRONG... What he has shown at the 1 standard deviation is actually the 0.5 What he has shown as the 2 standard deviation is the 1 And what he has shown as the 3rd standard deviation is the 1.5 Only someone who has spent years plotting 1000s of pitchforks could spot that in a second of clicking the idea So sorry for anyone that follows the other stuff he publishes... 🔥
MarlosClock
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@Great_Reset_Investing, Go look at the bell curve again and think real hard. The deviations are equal parts on each side of the median... 2 x .5= 1 STD DEV 2 x 1 = *drumroll* 2 STD DEV etc.
-1.0 to +1.0 is 2.0 of range. If it was only 1st STD DEV, why would anyone assume that 32% of the price action was gonna happen outside of the high and low pivots of the last range? You pick the pivots BECAUSE they encompass 95% of the price action in the trend. If you need any more help, I'm here for you bud.
Great_Reset_Investing
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@MarlosClock, hence why your little brain got all excited when it saw the pitchfork and the bell curve. You're confusing the mean with the geometric median. Anatomists and geometrists understand the concept of the median. You are neither.
Show me where Alan Andrews or anyone proficient in market geometry talks about a normal distribution of price around the median. Greg Fisher is the only one to validate PRICE ACTION in relation to pitchforks. He does not mention a normal distribution in his paper once. Neither does Alan Andrews in the original course.
The median line is a geometric construct based on three alternate pivots ABC: the bisector of BC from A. The paramedian lines are parallel lines originating from B and C. They are by definition the 1 SD lines. Any other paramedians are located as standard deviations from this construct. You are confusing the normal distribution about a mean and this geometrical construct. Just because it looks similar it does not mean it is mathematically similar. The 1SD paramedians are literally that. It has nothing to do with a distribution of price within the construct. You are literally saying here that a dolphin is a shark. There is no relationship between these concepts. Forks are about geometry and momentum. They have nothing to do with distribution of price. You're wasting everyone's time and confusing them- and of course your own. Pitchforks are like most great things in life. Deceptively simple. A bit like u...
@MarlosClock, your confusing the 'median' - an average, with the geometric median. The geometric median is what pitchforks are based upon. You're totally confused...
It has NOTHING to do with a normal distribution. This guy just looked at the bell curve, saw that we have warning lines at standard deviations; and saw that it was called the median line and his imagination ran away with him…
His original idea even mislabels the SD lines as I pointed out.
This idea is a car crash…