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Andrews Median Lines: An Introduction
One of the groups of tools I use in my trading
consists of Andrews Median Lines and Babson Action/Reaction Lines. Although
there is very little written information around that teaches Andrews Median
Lines, you can easily find 'Andrews Pitchforks' formations built into many
charting software programs. Tools used without knowledge never work as well as
tools mastered--I hope I am able to add some interesting thoughts about using
these tools. First, there are other people that offer their own versions of how Andrews
Median Lines should be used--Some teach it as Pitchforks, one even teaches it
these days as Newton's Lines. Like all knowledge, each claims he or she has the
right of it. They all have their own price for what they teach. I claim only
that what I was taught has served me well and I will gladly share what was given
to me as a remembrance to my past mentors. I do not dismiss what others may add
to this thread; in fact, I'd welcome all thoughts and questions on the subject. The median lines [MLs] are simple to draw: simply choose a high, low
and high pivot [Often described as an A-B-C]; or choose a low, high and
low pivot. It's best to start with what looks to be important pivots [the term
swing highs and lows may be more popular these days]. Once you have chosen three
pivots, [a high, a low and a high], connect the last two pivots with a line
[B-C]. Find the mid-point of this line connecting the two [B-C] pivots. Then
draw a line from the first [A] pivot through the mid-point of the connecting
line between the two [B-C] pivots. Extend this line [now called a Median Line]
out in space. Similarly, draw lines parallel to the Median Line that begins at
the [B] pivot and then the [C] pivot. You should now have what many call a
pitchfork. The line that starts at the upper pivot and runs parallel to the
Median Line is called the Upper Median Line or Upper ML; the line that starts at
the lower pivot is called the Lower ML. How do I know which pivots or swings to choose? The answer sounds
simple-minded, yet it is still the single best answer I can give: Draw many
lines and use the lines that prices respect when you trade. Draw as many lines
as your eye sees as pivots because often, the first or second or third
combination will not 'describe' or 'contain' any of the action of price when you
first draw the MLs. Remember, you can draw an ML as soon as you suspect a pivot
has been made--In fact, there are very useful techniques that use the O-H-L of a
single day for the ML formation. But for now, the key is to try the pivots you
see on the chart in front of you. I try different pivots, starting first with
major pivots in the weekly or monthly mode in my charting package, and then draw
MLs off of lesser and lesser pivots. I do erase MLs that are not of major pivots
and do not 'describe' price. But major MLs, even when price has been moved away because of the march of
time, may have some predictive power, so I leave them [I will speak of using
these 'leftover' MLs when I post about using Babson Lines]. So if you pull up a chart and find three major pivots and draw a ML and it
looks as if it may describe or contain price in the future, do you begin selling
the commodity as its price approaches the Upper ML? Or try buying the commodity
when price approaches a Lower ML? The first simple rule is that downward sloping
MLs indicate prices in a downtrend--downtrends are made to be sold and the Lower
ML of a downward sloping ML describes prices that will trend lower. Upward
sloping MLs describe uptrends. Then buy a commodity when the price reaches the Lower ML of an upward sloping
ML? Perhaps. The upward sloping ML certainly has the potential to show you where
support may be found. But like all things, you will know the quality of the
support this Lower ML will give after it has been tested by price and the more
it is tested, the more you will know about it. The more any ML is tested and
holds, the more support it likely shows--But the more important its violation,
as well. In other words, when you first draw an ML, unless you are drawing an ML
using pivots that allow you to see price test its boundaries several times, it's
always best to let it 'earn' its respect. Most traders think that MLs are a stand-alone tool, but I was taught to
always use them along with many other signs of support and resistance and it is
the integration and interaction of these many tools that can make the techniques
valuable. Although you can draw many 'pitchforks' that, after the fact,
describes a tremendous amount of action, if that was the extent of their use,
they would be simply linear regression channels. And in fact, good MLs do indeed
describe price action very much like linear regression channels. But when you
combine MLs with other support/resistance tools, you have a much stronger set of
tools. Similarly, you can draw very wide MLs that have very little interaction with
price, as if searching for the 'absolute' upper or lower boundaries for price
[these are often featured on pages trying to attract your attention—usually it
is pointed out that the 'pitchfork' was drawn on the chart *months* before the
upper bounds was tested, as though drawing a line months before above price that
*eventually* was tested by an uptrend was an important tool]. Again, I was
taught that MLs that describe, contain and interact with price are useful;
overly wide MLs from monthly pivots may not be useful for months, if ever.
Examples Here are several charts in gif files that may help you visualize my
explanation of how to choose major pivots for Median Lines. These charts are of
weekly continuous Cocoa--But please note that I have purposely chosen a set of
charts that help illustrate how I choose major pivots. It's important that these
charts are not viewed as 'typical.' Continuous charts do not always behave as
delivery month charts and sometimes you will achieve Median Line results on
longer-term charts that are as nice as this example, and sometimes you
won't--These are only presented for the purpose of looking at these three pivot
points.
On the first chart, price rallies to test multiple tops [I count at least
five weekly bars prior to the last bar we are looking at]. These 'test of tops'
are very important and since no rally has successfully closed beyond this area,
IF price fails here, we will again have established an important pivot--we'll
watch the next bar and if price retreats, we'll try treating it as our high
pivot.  On the next chart, [Andrews2.gif], we see that price did not make a new high,
price made a lower low and it also closed lower--We'll try this area as a major
high. Note that I have marked in our pivot points [A-B-C] and then drawn in the
Median Line, Upper Median Line and Lower Median Line. Now we'll see if price
'respects' this ML.  This weekly chart shows that price has indeed respected the Median Lines and
so we would watch this longer-term ML when we make our trading decisions. Most
traders do not trade off of weekly charts, although this was one chart that
could have suited your needs without further input.  Here's a longer view of the same weekly chart, giving you more perspective. Timothy Morge
Blackthorne Capital, Inc.
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