Dr. Alan H. Andrews - Market Master 

Neil A. Costa

 

Alan Hall Andrews is probably best known for developing a charting tool that is today named the Andrews Pitchfork. In fact, his contribution to technical analysis is much, much more than this simple, yet amazing, tool!

Alan Andrews was the son of an investment advisor and as a result grew up in a family where talk about financial markets occurred on a daily basis. He was intelligent, and understood the value of a good education. He graduated from Harvard and MIT.

Andrew worked for his father. He is reported to have made one million dollars from his investments in his first four years. That was an enormous sum of money more than 80 years ago.

Andrews married and had several children.

Alan Andrews later became a lecturer at the University of Miami, in Florida. He then retired, deciding to devote his professional time to managing his own investments and teaching others.

He published an advisory newsletter and documented his successful technical analysis and trading methods in his course. His weekly newsletter also taught clients his various techniques.

 

The Action-Reaction Course

The course was 60 pages in length and used what is best described as a case study approach. He described his method as the ‘Median Line Method’.

Andrews’ course sold for $1,500 in the 1960s and 1970s, which was a considerable amount of money in those days. He states the following at the beginning of his course:

What are some of the important profit making principles that you are now about to learn to use. One is the application to price fluctuations of Newton’s law of physics to which the late Roger Babson attributed his fortune of over $50,000,000. The Action and Reaction Rule that states that these are equal and opposite. Another is how drawing a single line will enable you to know where the price of any stock or any future is now headed and the probable time it will reach there…

(Andrews, A. H., Action-Reaction Course.)

One of the action and reaction techniques taught in the course was the pitchfork, so named because the lines resemble a pitchfork when drawn on a chart. This later became known as the Andrew’s Pitchfork.

Before we examine the Andrew’s Pitchfork, it is appropriate to briefly mention the two individuals whose work, directly or indirectly, so profoundly influenced Alan Andrews. These were Sir Isaac Newton and Roger Babson.

Sir Isaac Newton

Sir Isaac Newton was the famous British mathematician and physicist who lived from 1642 to 1727. In Book 1 of Principia (1687), Newton outlined his three laws of motion. Newton’s Third Law stated:

"For every action there is an equal and opposite reaction."

Roger Babson

Roger Ward Babson was born in 1875 and died in 1967. At one critical point in his career he worked with George F. Swain, a Professor of Engineering. He noted that Professor Swain drew a ‘normal line’ through the zigzagging market action on charts, and likened the markets action to Newton’s Third Law. He used this concept to forecast the 1929 crash well before the event, in an article published in a New York magazine.

Babson became obsessed with the work of Sir Isaac Newton, and passionately believed that Newton’s Third Law could be applied to economics. He produced charts called the ‘Babson Chart’ and is reputed to have made a fortune of more than $50,000,000 using the ‘normal line’ principle.

Babson’s main achievements include:

  • The writing of 47 books;
  • The founding of Babson College;
  • His candidature for President of the United States in 1940, coming third out of a field of eight, after Franklin Roosevelt and Wendell Wilkie. He stood as a member of the National Prohibition Party.
  • Founding the Gravity Research Foundation in 1948.

Alan Andrews met Roger Babson when Babson conducted a seminar that illustrated how Newton’s Third Law applied to the stock market. They became good friends and Babson taught Andrews his action and reaction techniques. Andrews subsequently named his course the Action-Reaction Course in acknowledgement of Babson’s teachings.

 

The Andrew’s Pitchfork

Alan Andrews would teach his students how to draw median lines on charts. These often looked like pitchforks, and they soon became known as Andrews Pitchforks.

Construction

The following is a Market Analyst chart of the Dow Jones futures contract.

If we examine the two upward-sloping pitchforks, each has a pivot point low labelled ‘A’, a pivot point high, labelled ‘B’, and higher low point (than ‘A’) labelled ‘C’. To construct an Andrews Pitchfork, we do the following:

  1. Find the mid point of Line B-C.
  2. Draw a straight line from point ‘A’ to the mid point of Line B-C.
  3. Draw lines from Point B and from Point C parallel to the median line that runs from Point A through the mid-point of Line B-C.
  4. Draw additional lines parallel to these at equal spacing (as has been done here) or from pivot points.

Remember: The computer was given the points ‘A’, ‘B’ and ‘C’. It did not know what market action to expect after Point C was in place. Despite this, the pitchfork lines gave an excellent indication of the market action in advance, according to Dr. Andrews’ rules.

Use of the Andrews Pitchfork

In essence, there are two uses of the Andrew’s Pitchfork. The pitchfork can be used to forecast market turning points, and it can be used as a channelling tool for support and resistance purposes.

Dr. Alan Andrews states in his course that there is a high probability that:

  1. Prices will reach the latest ML [Median Line];
  2. Prices will either reverse on meeting the ML or gap through it;
  3. When prices pass through the ML they will pull back to it;
  4. When prices reverse before reaching the ML, leaving a ‘space’, they will move more in the opposite direction than when prices were rising toward the ML.
  5. Prices reverse at any ML or extension of a prior ML.

(Andrews, A. H., Action-Reaction Course.)

In a sense, the Andrew’s Pitchfork appears to put the market on train tracks. This gives the trader an excellent indication of where the market is likely to be heading, and an indication of its strength.

Members of the Society of Technical Analysts of New Zealand (STANZ) may recall me discussing the market action of the All Ordinaries Index on an Andrew’s Pitchfork at a presentation I gave in October 2000. When I returned to address STANZ members again in August 2001, the market was still holding the same pitchfork lines some 10 months later!

 

Conclusion

There are many excellent technical analysis and trading tools that one can use. The Andrews Pitchfork is one of the best-kept secrets. Many people give it a cursory glance and dismiss it as being too simplistic. Sadly, by not giving it a thorough trial, they fail to realise just how well the market respects the pitchfork lines, and how valuable this can be in trading.

[This article was reprinted with permission from the Australian Technical Analysts Association Journal, July/August, 2002.]

DISCLAIMER:

Every effort has been made to ensure that the content and conclusions presented in MasterStroke are complete and accurate.

No part of MasterStroke contains trading advice - stated or implied, nor is an invitation to trade. The directors and associates of Market Masters Pty Ltd are NOT licensed trading or investment advisors. Market Masters Pty Ltd is an organization designed to assist traders and investors to become more knowledgeable and independent.

The giving of advice is therefore contrary to the very objectives of Market Masters Pty Ltd.

Traders requiring trading or investment advice should contact a licensed advisor. Stockbrokers and futures brokers are licensed advisors.

Neither Market Masters Pty Ltd, nor anyone else involved in the production of MasterStroke, will be liable for any liability, loss or damage directly or indirectly caused, or believed to be caused, by MasterStroke.

Traders, to be successful, must take full responsibility for their own actions.

With respect to trading results, past performance is not necessarily an indication of future performance.

By maintaining your subscription to MasterStroke, you acknowledge that you understand and accept the contents of this disclaimer.