Pitchforks Follow Normal DistributionPitchforks 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.
Andrewspitchforks
Andrews pitchforkPrice could not touch Median Line and a Hagobian Gap* has builded up,
then broke sliding parallel,which is sign of weakness.
I am awaiting a fall until 1890-1900 area,
which is a suffient level for open a long position,
in case countertrendline breaks.
//*If the price hasn’t been able to touch the median line
(20% of the time), the market intends to form a bigger wave in the opposite direction,
i.e., if the market has formed an ascending pitchfork but hasn’t touched the median line,
it is probable that a descending rally begins in the market.
Andrews pitchforkAccording to COT data, last week Non-Commercials ( Banks, Hedgefunds etc.) have :
In GBP added to their long positions 2887 contracts and
decreased short positions 8661 contracts,
In Total there are 26k long and 65k short contracts of Non-Commercials,
In JPY added to their long positions 8341 contracts and
added to short positions 17500 contracts,
In Total there are 41k long and 103k short contracts of Non-Commercials,
In the result, GBP has more powder in order to hunt sell limit orders of retail traders around 158-159 zone.
Andrews pitchforkAccording to Hagopian Rule ; if prices reverse before reaching the Median Line, leaving a <>
they will move more in the opposite direction than when prices were rising
toward the Median Line , in this case price has made LH and LL <>
which indicates the weakness of ascending momentum
Andrews pitchforkABCD parttern in process,
i have sold with touching the neckline of M,
and can one part more sell , if local trendline break one more time,
2.warningline is about to break, therefore at this zone I am waiting here for a local swing,
according to COT data of last weeek , sellers and buyers reduced positions app. in near amounts,
therefore I am awating sideways movements today and morrow
Andrews pitchforkABCD pattern in process,
according to Hagopian Rule ; <>,
in this case, price fell without reaching Median Line around 1835, leaving a 3 dollars gap,
moreover local trend line and Hagopian lines are broken too,
I think about selling around C point ; IF LOCAL COUNTERLINE (BC LEG) BREAKS.