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Andrews Median Lines: Some Questions Answered.
 by  Tim Morge www.swingcharts.com/Andrews_FAQ.html
I did get several good questions and thought I'd share the questions and answers here:
Question: Let pivots be labeled A, B, C: Is the method more reliable when these points make an equilateral triangle?
Answer: No. In fact, it would intuitively seem that major swings or pivots make the 'best' points to use for all Median lines. But in practice, the best points to use are the points or pivots that describe or contain the price action. I know there are 'purist' chartists and if that's your preference, then by all means, draw the lines that suit you. But the goal of the Median line is to contain or describe action as it unfolds--and so by all means, be creative. Often, it's the obvious pivots that work the best, but at times, you have to get your hands dirty. I'll give a few creativity hints: If all else fails or if you are looking to use these techniques on 'short term' trading, try using the highs of the three pivot points, or the low. Or use the extreme of a gap. Or use an extremely wide day as the high and low of an A-B-C. Try it. You can always erase it if it doesn't describe or contain action.
Question: So by what I read you update and draw charts manually. Do you feel that this would not be as effective when done with an ela program [for TradeStation] or on a computer charting program?
Answer: I do still keep hand drawn charts. It's a work of love and I think it helps me keep a good feel for the markets I trade. I hand chart about 20 commodities in daily, weekly and monthly bars by hand. The one exception to this is the stock indices. I find them too noisy to give me much of a feel by hand. I chart them in 13, 39, 78, 195, 390 and 405 minute bars, as well as weekly and monthly, using a charting package on one of my computers.
These days, there are quite a few charting packages that do an adequate job with Median Lines. If you are looking for a program for any of the TradeStation version, Clyde Lee's code is the best available. [You can view his web site here!] He has both automatic and manual versions. I have his software and use it on my TradeStation charts. If you want charting software that allows you to draw a great variety of Andrews and Babson lines, I use Advanced GET for the charts on my web pages. There are others out there as well that do a fine job.
Question: Since I have started this I have been looking for points of price exhaustion at tops and bottoms...to confirm this, I have also used oscillators. If using only the "Forks" can we determine price exhaustion or must we use the "Fork" trend line break as our trigger?
Answer: Well, you asked a great question here. Yes, if you are doing thorough analysis, Median Lines should help you choose price levels that will likely be 'exhaustive' in nature. In the recent huge run up in bonds, I had a very wide Median line that described price in the continuous contracts on a weekly basis--much too wide to use to trade by itself. However, to give you a hint of how I use confluence, I used a set of tools that I learned from Joe DiNapoli, the oscillator Predictor and Fib Projections, along with this very long-term Median Line, to find what seemed to be a possible exhaustive area. If my memory serves me, the oscillator predictor on the weekly charts gave a most overbought level as 135.10 and the weekly fib projection was 135.09 and the upper bounds of the Upper Median line came in at 135.23. Those three were available to me weeks before the bonds traded at those levels. Now, many vendors will post that very wide Median line and claim that they 'knew' the extreme price that bonds would make in this run up. To me, that's a nonsensical claim. The only way to use that very wide Median Line, in my opinion, is when you find yourself in a trend that is running on adrenaline and you have a lot of profit in a position and you are looking for a 'logical price objective.' For me, that gives me the confidence to take all the profits on a huge trend up and get out of the way. And by the way, I would not gone short there based on that analysis. Period.
Question: You mention support and resistance. Are we looking for support and resistance points within the Fork or are these better used for the A-B-C triangle?
Answer: Sure, there are support and resistance levels within the Median Lines. For example, look at this chart of weekly cocoa:
Every time price got to that Upper Median Line, you should have been selling. When a line has worked like that, beat it to death! Give it every chance to work. Don't blindly trust an untested line, unless you have other reasons to expect that support or resistance to hold. But once it has been tested and even better, when you can add the 'confluence' of other indicators like trend lines, fib projections and retracements, chart formations--then you can have much more confidence in the Upper and Lower Median and Center Median lines.
Question: Direction of trend: Can we determine the major trend with the "Forks?" How many bars would this require (at least three pivots)?
Answer: The direction of the major trend is quite easy to see, once you choose the three major pivots and then draw in the Median Line.
Actually, though it is very seldom taught, you can draw and use a Median line using the open high
and close of a bar. Period. Does it work? It can. That depends on what you are trying to use it for. It can be great for setting stops, for example.
Question: Regarding the swing within the trend, I would think the method would be to sell at the upper ranges and buy into the retracements. Is there any way to gauge the market strength as we see price action at the median or the upper "fork?"
Answer: Yes. First, you buy the dips and sell the rallies IF the Median lines have been tested and you find they describe price. And here's the clue about strength of trend: If you have a solid Median line drawn off of 'important'
pivots [maybe swing highs and lows?] and it is containing price AND price has tested and tested one of the Median Lines over and over and the lines have held price, this is a very good indication of a strong trend. Look at that weekly Cocoa gif again:
The current Median Line contains and describes price and it is holding it great--that's a strong trend.
Other shows of strength [General comments, not pertaining to the Cocoa example]: Price tests the Lower ML of an upper sloping Median line and then begins trading up and has no trouble running through the Median line--if it doesn't immediately retrace back to the Median line, it's going to the Upper Median line. The probability is 80 percent once it's closed above the Median line for the third day.
Question:
You mention trend lines: In addition to the "Forks" you would use Price trend lines in the direction of the swings? So the breaking of these trend lines would be a trend line breakout?
Answer: I draw normal trend lines. I was taught to label them as 'pivot' lines and refer to them as 2P or 3P or 'multi-pivot' lines, depending on how many times they touch a pivot--and the more the merrier. I am especially interested in any pivot line that intersects with a ML or Upper or Lower ML. And I am also looking at the intersection of any other Upper or Lower ML or ML that intersects a ML [which refers to using more than one ML as I look at the 'trends within the trends']. Any intersection is important and may have much more support or resistance than a simple trend line or Median Line.
Question:
So a parallel drawn above and below the outer "Forks," in equal channels is called a 'Andrews Warning Lines? This would maintain the original Fork plots and allow an outer extensions...is that right?
Answer: Yes. They are drawn as wide as the original "pitchfork" and parallel to it. I generally draw four extensions.
Question:
You mentioned the slope of the ML's showing direction but yet you could have 2 or more active sets with different slopes. How do you look at this situation?
Answer:
I mark major trends and more minor trends. As price seems to be making a pivot, I draw a ML and watch to see how price respects it. I'll often have a handful of MLs on one chart--many within the 'major' ML. You can then use them to try to catch minor price moves OR to get into a trend you missed earlier or to help you take partial profits.
Question: A person selling courses in this technique mentions that there is a secret formula that explains where to draw the lines in Dr. Andrews original notes and only he has this secret method. Can you comment on your thoughts on this?
Answer:
I'll comment: The best way to sell your stuff is to either claim only you have the secret stuff...OR give it a cutesy name. I have a tremendous amount of original materials on the subject and I know a few other people at least as well schooled in his work as I am and there just isn't a 'secret' method. The secret is to work hard and master your tools, whatever they are.
Timothy Morge
Blackthorne Capital, Inc.
Commodity Trading Advisor
CFTC and NFA Registered
© Blackthorne Capital, Inc. All materials in this article are copyright Timothy
Morge, Blackthorne Capital, Inc. 1999-2002
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