Median Lines – An Overview Median Lines were originally developed by Dr. Alan Andrews, a Thermodynamics Professor at MIT. They are also known as pitchforks and are drawn using a set of three alternating pivots. A median line can be thought of as a vector or a line of force. It allows the user to project the probable path of price into the future. The slope of the median line visually tells the user whether the market is in an uptrend or a downtrend and the steepness of the slope tells the user how quickly price will move up or down through time. In the diagram we can see the basic elements of a median line. We have three alternating pivots which are used to create the median line. A line segment is drawn connecting pivots B and C. This line segment is then bisected by a ray that originates origin ates at the A pivot. A ray extending from both pivot B and pivot C with the same slope as the median line complete the pitchfork. The upper median line parallel shows the area where price tends to run out of energy to the upside whereas the lower median line parallel shows where price tends to run out of energy to the downside. The following charts show the creation of a standard median line.
Time frame and instrument are not important. This could be any chart.
Here I connect a line between the important pivots. This isn't a necessary step – I'm just trying to make the pivots more easy to see.
The same chart with the bars removed.
I've highlighted the pivots we are going to use to construct our median line.
Here is the completed and labeled median line.
Just price bars and the median line. Notice how price interacts with the median line? Dr. Alan Andrews created a course for teaching his median line method. The most important point in the entire course was “the MLs enable the user to be one of the few who can tell where the prices are headed, and the place they will reach about 80% of the time, and when approximately that place will be reached.” This should get you very excited to learn more about median lines. Price will reach the median line about 80% of the time. We will delve into Dr. Andrews original course in more detail. Here are the abbreviations I will use throughout this course. I have tried to use the same abbreviations from Dr. Andrews original course to avoid confusion with other materials on the subject: ML UMLH LMLH MML MPL CL A R EP P SH
Median Line Upper Median Line Parallel Lower Median Line Parallel Mini Median Line Multi-pivot Line Center Line Action Line Reaction Line Expanding Pivot Pivot (note pivot counts will start with P0) Sliding Parallel
WL
Warning Line
The letter “H” was always used to denote parallel in Andrews original course. My guess is that this is because of the shape of the letter - I will continue this tradition. It is important to state that I do not consider myself to be an expert on median lines. I will faithfully show and illustrate everything I know on the subject but as with all trading tools I encourage you to do your own homework. Although median lines appear to be a simple tool and in some ways they are, the only way to use them effectively is by deep practice. Eventually things such as pivot choices will become second nature. There is an element of subjectivity and creativity in the use of median lines. Often two people will draw completely different lines on the same chart and both come up with great trades. I encourage you to learn the rules but develop your own eyes for pitchforks. Lastly I think it is important to state that a lot of what is in this course is my own interpretation of what I have learned from either Alan Andrew's course or Timothy Morge. Mr. Morge is the reigning expert on forks and I highly suggest finding anything on the subject by him. Although I have never spoken to the man – I consider him my teacher and therefore a lot of the material in here as derivative of his work.
Median Line – Understanding Pivots In order to pick the median lines which will predict the path of price we need to have an understanding of pivots and swing highs and swing lows. By studying swing highs and swing lows we should be able to see subtle changes in the market we are charting. So what is a pivot? A pivot is a point at which price reversed. There are major pivots and minor pivots. Lets look at an example.
Here is a 60 minute chart of the USD/CAD. Starting on the left hand side of the chart I have circled the low at which price reversed. This is both a major pivot and a major swing low.
If we zoom in we can see that price started making higher highs and higher lows. Higher highs are circled in red whereas higher lows are circled in green. The smaller circles denote smaller swings whereas the larger circles denote larger swings. In an uptrend the job of price is to take out the
previous high. When it fails to do so there is often a corrective move. There are even smaller swings which are not labeled on this chart. If we moved to a lower time frame they would be easy to identify.
So we need a way to confirm a swing high or a swing low. A swing low is confirmed when the previous high is taken out by price. A swing high is confirmed when a previous low is taken out by price. I highly recommend working through every chart labeling confirmed swing highs and swing lows as price unfolds. An uptrend is a series of higher highs and higher lows. By tracking highs and lows you can see potential trend reversals clearly. Here is a series of charts showing how swing highs and lows are confirmed as price unfolds.
Dr. Andrews taught in his course to label a major high or low as P0 and each significant pivot that follows as P1, P2...Pn. He taught that in general a price reversal was likely to occur after P5 had formed. Do not confuse this with Elliott Wave Theory. This is a rule of thumb that in general price will form AT LEAST five pivots before a reversal. Price can and will form nine or more pivots regularly. Dr. Andrews taught that if you connected the P0 pivot with the lowest low (in an uptrend) so that price does not pass through this line – this line would act as a trend barrier. This line is usually formed by connecting the P0 with the P4 pivot. When price breaches this line then the direction of the trend has changed. Lets look at our chart again.
Here I have marked the pivots in each up and down move. This is a little subjective but as long as we connect the P0 pivot to the lowest low (in an uptrend) we have created a very nice trend barrier. Lets look at the results.
Notice how every time the P0-P4 line was breached price often quickly moved in the opposite direction. You now should have an understanding of swing highs and lows and how to mark pivots. We will be using these pivots to draw our median lines.
Median Line – construction There are three types of basic median lines. They are the standard median line, the schiff median line and the modified schiff median line. Unfortunately the schiff and modified schiff are often confused. There are even some charting packages that mislabel them. Whatever they are called as long as you understand the construction of each type you will be able to create them. The schiff median line is named after its originator but can be confusing because the A pivot is shifted. The construction of a median line requires three pivots. They must be alternating either high-low-high or low-high-low which we will call Pivot A, B and C. A line segment is drawn connecting Pivot B and C. A ray originating from Pivot A is draw so that it bisects the B-C segment. This ray is the median line (ML). A ray with the same slope as the ML is extended from the B and C pivots. These lines are called the upper median line parallel (UMLH) and lower median line parallel (LMLH). The portion of the median line before it bisects the B-C line segment is known as the tail. This is the construction of a standard median line set. In a schiff median line the same line segment B-C is drawn and the same A pivot is selected. However, instead of the median line originating from the A pivot it is shifted toward the B pivot. If you were to draw a horizontal line through the B pivot and another through the A pivot then the schiff median line is shifted 50% of the distance from the original A pivot toward the B pivot in the vertical plane only. (The diagram below should make this clear). With a modified schiff median line the A pivot is shifted 50% of the distance between the original A pivot and the B pivot in both the horizontal and vertical plane. Lets look at an example.
The chart above shows price action and the three pivots we will use to create all three of our median lines.
Here is the standard median line.
Here is the schiff median line. Notice the tail moves towards the B pivot. In a downtrend the B pivot would be higher so the tail would move up.
Here is the modified schiff median line. The tail is shifted down and forward. The standard ML should be your first choice when drawing median lines. When price makes a near vertical move often a schiff median line or modified schiff median line will predict the path of price better than a standard ML. This is because markets rarely move vertical for very long. It has been my experience that the modified schiff ML is a much more common tool than the schiff ML. Generally the selection of the B and C pivot is easier than the selection of the A pivot. The B and C pivot should be chosen so as to capture the width of the market cycle. They should be pronounced highs and lows in the general trend. The A pivot is chosen based solely on how well it predicts the path of price. Always choose pivots that best describe the path of price. I can't emphasize this enough. Here is a 60 minute chart of NZD/USD. I have circled two potential B and C pivots for the unfolding up trend. Both of these are good candidates so we will need to try various combinations until we have something that we like.
I'll start with the first two pivot choices as I would as the market unfolds. After looking for an A pivot that works well with these B and C pivots I choose the following:
You can see that it does an okay job describing price but only for the first swing. Market structure tells us we are in an uptrend and this fork is sloping down so I would try a modified schiff instead – keeping the pivots the same. Here are the results:
This beautifully captures the path of price. It shows price respecting both the median line and the lower median line parallel. There are several fantastic trades we could take off of this ML. To be thorough I will show some of the other ML options:
This modified schiff ML also predicts the path of price quite nicely. Its quite similar to the first one. Here is another option:
This standard ML also captures the path of price nicely for a shorter amount of time. It isn't as efficient as the other two MLs but it is still tradable. Please know that I'm not hand picking these charts but just pulling up current charts in markets I trade. You can do pretty well just trading off of the three major ML types. There are some other basic tools that Dr. Andrews came up with to help us find the probable path of price when our ML fails.
Median Lines – Basic Rules Dr. Andrews taught several basic rules for trading with median lines in his original course. They are as follows:
1. There is a high probability that prices will reach the latest ML (around 80%) 2. There is a high probability that prices will either reverse on meeting the ML or gap through it 2. When prices pass through the ML, there is a high probability that they will pull back to it before continuing in the same direction. 4. When prices reverse before reaching the ML, leaving a “space”, there is a high probability that price will move further in the opposite direction than when it were rising toward the ML 5. There is a high probability that prices will reverse at any ML or extension of a prior ML An entire trading plan can be devised around these simple rules. Timothy Morge has modified Andrew's second rule slightly. When Andrews was a trader he mostly followed daily stock charts and it was a common practice for gaps to form on these charts. With intraday charting and 24 hour markets gaps are much less common. Mr. Morge changed the wording of this rule to “there is a high probability that prices will either reverse on meeting the ML or zoom through it”. A zoom bar is a wide range bar that moves quickly through a median line with good separation (meaning the bar closes well off the ML). When a zoom bar or a gap occurs, passing through a median line – price will often retest the median line before continuing in its original direction.
Median Lines – Sliding Parallel A sliding parallel (SH) is a line with the same slope as a median line that we are using. It can be used inside a median line set when price is consistently not getting to the ML or outside a median line set when price is consistently exceeding the upper or lower median line parallel. Consider this modified schiff ML:
Price has gotten a little sloppy and isn't making it down to the lower MLH. We can copy the slope of the median line and run it through the low pivots. It should predict where future swings run out of downside energy:
We see that price respected the inside SH. We call this a change in frequency. When this happens price will often exceed the other side of the median line set by roughly the same amount:
Its as if the whole fork has been move up. We use sliding parallels to continue to capture the path of price:
Whenever price fails to reach a median line parallel and reverses sharply you should get in the habit of drawing in a sliding parallel. Price doesn't only shift, sometimes it expands out both sides of the fork.
Median Lines – Warning Lines Warning lines are very similar to sliding parallels. The main difference is that the warning line is the same distance from the median line parallel as the median line parallel is from the median line. When price moves out of a fork that has been predicting the path of price, price is likely to stall or reverse at a warning line. If the first warning line is breached a second warning line can be drawn:
Here we have a 60 minute chart of the EUR/USD with a downward sloping modified schiff median line. It has been interacting with price well. Price made some nice touches along the tail and has been respecting the median line fairly well. We can see that price has struggled to move higher and finally falls below the median line before consolidating for a while and finally plunging through the lower median line parallel. This is what Tim Morge has called a zoom bar. After a zoom bar price is likely to run out of energy at a sliding parallel. Lets see what happens:
We see that price did exactly that. It kept falling until it touched the first warning line and then reversed, making it just inside the fork before plunging through the lower median line parallel again:
Price now tests the lower median line parallel a number of times before again plunging lower and stopping at the first warning line. It then tests the lower median line one last time before again finding its way back to the first warning line:
Price finally moves through the first warning line and makes it almost to the second warning line. It then reverses and makes it almost to the first warning line. You can see how well the median lines and warning lines acted as places for price to run out of energy before reversing. This fork was drawn in early December and is still useful in February.
Median Lines – pitchfork variations There are two common pitchfork variations that I use regularly in my charting and trading. One is the width median line (a term coined by Timothy Morge) and the other I like to call the rip median line. Remember that our goal as students of the pitchfork is to draw the fork which has the highest probability of predicting the path of price. Occasionally the standard pitchfork and schiff variations won't give us enough options to draw a good fork. This is where the width and rip median line come into play. Anyone who wants to master a trading tool should start with the basics. I'm including these variations in an effort to be thorough in my treatment of the subject. The basic idea of the width median line is that sometimes picking the highest or lowest B and C pivot doesn't properly project the path of price. In certain instances another lower pivot can be chosen which will better highlight turning points in price. Lets take a look at an example:
Here we have a chart of the GBP/USD. Price has been falling quickly and broken into a wide range. Here are the obvious pivot choices labeled. Lets look at what happens when we draw a fork off these pivots:
Its kind of a mess. We have price climbing out of the fork almost right away. Then price jumps into and out of the fork with no predictive qualities. If we move the C pivot to the next peak to the right we have a width median line. It is called a width median line because by moving the C pivot further out we are attempting to grab the entire width of a price swing. Note that width median lines can require adjustment of a B pivot instead. As always are goal is to predict the path of price. Lets take a look at our new fork:
Although this fork is still a little sloppy we do see that there are a lot more touches along the median line and upper median line parallel. We have definitely improved the predictive power of this fork. Now lets look at rip median lines. A rip median line is when the top or bottom of a gap is used as a pivot. I call this a rip median line because this seems to work best when a gap causes a change in trend. It is as if price has been ripped in half. Lets look at an example:
Here is a 240 minute chart of NZD/USD. Price was in a steady downward trend when a open gap was created. This was over a 35 pip gap so it took significant energy to create this tear in the price chart. Price moves away quickly before coming back to retest the gap and then heading off in a strong uptrend. Lets label the gap and the obvious pivot choices and a fork drawn off of them:
We can see that this fork does not predict the path of price we ll. What if we move our A pivot from the lowest low to the low of the gap?
We see a fork that is nicely predicting the path of price. There are some rules when using a rip median line. First, we still need to choose alternating pivots. With a gap Dr. Alan Andrews considered the bottom of the gap a low pivot and the top of the gap a high pivot. Our fork is therefore still following the rules of using a low and then a high and then a low pivot. As a side note I have personally found that rip forks work well in a few specific situations. The more violent the gap the more likely the gap will hold a useful pivot. Also if the gap causes a trend reversal the fork is much more predictive. Median Lines – Conclusion I may decide to add to this introduction to median lines in the future depending on the response it receives. Median lines can be used in conjunction with any technique you are currently trading with. Please let me know if you find errors or have questions about this topic.
