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Market Geometry utilizing Andrews Lines
For over 10 years we have been showing traders how to utilize the
lines Alan Hall Andrews personally taught us to use. As you can see
above they may be used to determine the probable trend channel.
Combining the Andrews Lines with the W.D. Gann Head and
Shoulders Pattern
By Ron Jaenisch as published in Tradersworld Magazine.
Both WD Gann and Alan
Andrews used geometry and pattern recognition. Numerous articles and
books have been written about both. Even though some of the
techniques of Andrews and Gann are well known, there has been little
discussion in combining the techniques. The advantages are
significant. Gann techniques have a high probability and
Andrews gives one the ability to enter the market with lower
risk and significantly better risk reward ratios.
Alan Andrews stressed the
importance of being a good steward of ones funds. To make the funds
grow was doing Gods work, according to his writings. To that end
Andrews stressed the importance taking high probability trades near
the start of a long move.
In this article the focus is upon a
very well known Gann pattern that is used by traders world wide. It
is widely known for his head and shoulders technique.
As can be seen in chart #1 the
pattern is visible to the naked eye as prices are making the second
shoulder. It is when prices break below the neck line that an entry
signal is triggered by Gann rules.
In chart #2, one can see that by
using the neckline as a centerline and the tip of the head as the
action line, the equidistant reaction line becomes the target under
Gann concepts. The entry point is the break of the neckline and the
target line is the trade exit point. For many traders it is the
right shoulder that becomes the risk or stop loss area.
For advanced Andrews and Gann traders the
static equidistant target line is not a probable turning point.
Using the entry point of prices going through
the neckline, is responsible for the trade having a much less
favorable risk reward ratio, than is possible by using Advanced
Andrews concepts.
With the Advanced AndrewsCourse.com techniques
one can often enter the market with an indictor like the
golden pivot rule near the second shoulder. Then initially as
a protective stop utilize the down sloping blue line in the Modified
Schiff ML as seen in Chart #3.
But what about the target for the trade? By
utilizing an effective understanding of the proper use of the
Andrews concepts and the proper interpretation of price actions
interaction with the Andrews Pitchfork the trade would exit for
different reasons. In many cases this enables the trader to exit
past the target line.
Andrews held that most moves had
five or more pivots. The pivots in the down move are labeled in
Chart #4. As you can also see, the normal Andrews pitchfork is
drawn. If prices show divergence in their relationship to the
Andrews lines, the move is often over.
Note that in chart #4 prices went past the red
Median line as they made pivot 3 but could not reach the same line
at pivot #5. The Andrews
technique signals an exit.
Since many traders look for long
signals in longer time frames, below are two examples with weekly
charts in SPY. The same trading logic was applied, and as you can
see the Andrews exit can occur prior to the Gann target.
The end result of the extra work of including the Andrews lines and
Advanced Andrews Course concepts is that one can achieve a more
favorable risk reward ratio.
Andrews hidden geometry techniques can be used
by them selves or to enhance Gann and other technical analysis
methods
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