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Over many years of studying price charts, Dr. Andrews noticed how frequently pri
ces reversed after forming 5 primary, or significant pivots. He said he saw coun
tless price trends where 3 pivots formed in the main direction of the trend, and
2 pivots formed as corrective pivots. With that in mind, whenever he concluded
that a P4 had formed on a chart, he used what he termed the 0-3/4 ML technique t
o project the area where the P5 would likely form.
To use this technique, a pitchfork is drawn using pivots P0-3/4 as illustrated o
n the attached charts. Notice that the P5 formed shortly after prices reached th
e ML. It's important to note here that while this method will often find the P5
forming when it contacts the median line, Dr. Andrews warned course members not
to expect that kind of accuracy on a regular basis. The intended purpose, he str
essed, was to locate the area at which a P5 was probable. When he determined tha
t a P5 had likely formed, he used additional techniques to help position a trade
. You'll learn those techniques in later lessons.
Sometimes prices pass well beyond the P0-3/4 ML, and when that happened Dr. Andr
ews would follow up with a new ML using pivots P2-3/4. Between these 2 technique
s, he said he was able to locate the P5 area with striking frequency. Not always
, but more often than not.
Also, there are times when prices reverse before reaching the ML. In a later les
son, you'll learn the technique Dr. Andrews used when that happened. He called i
t a "price failure," and had a special way of dealing with that.
You'll find an unmarked work chart attached. Please label the significant pivots
, and also draw a P0-3/4 pitchfork. You'll find that prices went somewhat beyond
the ML of that pitchfork, but recall that this is an area tool, used to alert t
he trader that prices are near a probable P5. Also, before labeling your pivots,
note the price congestion at the top left side of the work chart where several
highs and lows formed at the same general price level. Whenever Dr. Andrews note
d a trend reversal following sideways price movement, he marked the final high o
r low of the congestion as the P0 of the new trend. Your work chart will give yo
u a chance to study that. Please return your study chart along with any question
s or comments.