(binned per thread starter’s request) Abe's Median Line Thread

9/25: I'm now trading futures, mostly /MNQ (micro e-mini Nasdaq-100). Micro futures make it possible for those without large accounts to trade futures. I'm on the "thinkorswim" platform.

Thread Rules:
1. Always post a chart or charts with your post
2. No PDFs (see commentary below)
3. No commercial plugs

INTRO
I've been using Median Lines as my primary tool to trade for several years. This statement must be qualified by also saying that Median Lines in and of themselves should not be used to initiate trades. Median Lines are based in a deeper paradigm that is really more about the swinging of price. In many respects using Median Lines is swing trading. To use Median Lines effectively one really needs a firm grounding in price action rather than indicators. I hope to clarify Median Line trading and for most I think it will be much different than what they have been taught by themselves or by others.

PDFs
Sadly some good work done by Andrews and Tim Morge and probably others has been pirated, altered and repackaged and either sold or less offensively distributed in PDFs without their permission. I support looking up Andrew's and Morges' material from their original source but I do not support the distribution of PDFs floating around out there, some of which have ended up in my thread. I would ask that anyone posting here please refrain from posting any PDFs. I am familiar with pretty much all material related to Median Lines or Andrew's Pitchforks and it is doubtful anyone can find anything I haven't already seen. Besides I'm here to show you what I've learned and how I use it to trade.

MY GOAL
The work I do in this thread I have in fact learned from reputable individuals that I paid to learn from. I intend to present what I have learned from these individuals in my own words but I am not going to copy and paste what I have learned. I will present real world trading examples of which a large part will be live.

INVITATION
Anyone interested in learning how to use Median lines is welcome to post here. I ask that you try to include a chart or charts so that I can fully understand. If you are already using median lines successfully and doing so in a different manner than what I present please contribute but again please post your charts to support your post.

I will point out what I believe are erroneous assumptions and quite honestly improper usage of median lines that really lead to some abandoning their usage because they think they don't work. The problem is not that they don't work but rather how some are being taught to use them or how they are assuming they should be used.

One thing is for sure...using median lines cannot be systematized in a profitable manner.

A TYPICAL MEDIAN LINE

AND

ANDREWS 80% PROBABILITY RULE

This is a typical median line that most are probably familiar with. It has A, B and C pivots and the pivots alternate low, high, low. Pivots must always alternate, either LHL or HLH. It would be incorrect to draw a median line with pivots HHL, LLH.

This particular median line highlights very nicely one of Andrew's rules: Price will reach the median line about 80% of the time. This is powerful and using this principle of median lines can be a beginning foundation for anyone wanting to use median lines.

In this example it can be seen that after price formed pivot C it ascended to the median line.

INCOMPLETE MEDIAN LINE

AND

CONSISTENCY

Price will often not reach the median line as in this example. Although systematizing median lines is an exercise in futility we can be consistent about using them. Even in this case if we had at some point bought the uptrend from pivot C we more than likely would have been able to minimize losses or exited break even. Make no mistake median lines are not a panacea. There will be losses. It is how one uses money management with any trading method that determines profitability. We'll be talking about money management and R:R.

THE FALLACY OF FREQUENCY

This is an example of how not to use median lines. In this chart you can see that price has been bouncing off of the upper median line. This is called "frequency" by those who use median lines in this way. They suggest that once frequency has been demonstrated that one can use that line to trade. And I'm the first to admit it looks tempting but in practice it is nothing more than using the median lines as diagonal support/resistance and as such has nothing to do with how median lines work. If you are using median lines in this fashion and doing well then great! But just know you aren't really trading median lines but rather a trend line.

In the next post I'll give some fundamentals on what median lines are really supposed to do.

PRICE PROJECTIONS

Median lines are drawn from 3 points (A, B, C) as discussed earlier. The only thing the median line does from that point is describe a relationship between those 3 points.

One way to describe that relationship is via PRICE PROJECTIONS.

Once we have A, B and C we can begin to project price based on the relationship betrween A, B and C.

1. The most basic projection that we learned earlier is that the trend from A to B has an 80% probability of projecting C to
D.
2. Once price satisfies D (reaches the median line) we can make other projections based on how price behaves at or
around the median line.
a. In this case price eventually zooms through the median line. When this happens we can project that price may
continue on to the upper median line.
b. However if price shows rejection at or around the median line then we might project that price may continue back to
the lower median line.

Here's a live USDCAD 20 minute chart. If you want to follow along but don't have a 20 min option then just use a 15 min or even a 30 minute. Although I've labeled the bottom potential pivot as C it is not yet really a pivot. I'm just putting this up there to follow and see what happens. If pivot C becomes a reality then there is a chance to buy up to the median line.

EURUSD 20 min.
This is a good example of price satisfying the projection of AB = CD. Price has zoomed the median line so we can project that price might continue to the upper median line. The question is where would one buy in to do that? For now let's just watch and see how price unfolds.

Dear Abe16,

Thank you very much for starting this thread. I am curious about drawing the median lines, point C to be clear.
When do you consider point C as the final HL or LH?
Also, can you use them in the middle of trends eg. HH, HL, -Starting there> HH, HL, HH (so not the highest/ lowest points, but clear swings within a move)?
Is it still valid if point C extends further then point A?

edit:
Oh, I can see that you can use them in the middle of swings, like in the USD/CAD example above. There is a much lower Point A, during 21 May. The first Andrew's pitchfork from it never hit the median, but when moved to new points as price made them, it did. I wonder how much hindsight bias affects the back-testing of getting the 80% probability rule. I am inexperienced with median lines, but drawing 12 possible Andrew's pitchforks on EUR/USD from March to now I found 50% only hit the median line. Although, not a large enough sample size to confirm or fault the 80% probability rule.

Could you please define a set of steps or rules on how you think the median lines should be drawn, including what invalidates them (price moving past point A?).

Best Regards,
Tzamo

Does this have any relationship to Andrews' pitchfork?

I hope Abe doesn't mind me jumping in here, but yes, the Andrews pitchfork is derived from Andrews' median line work.

Hello Tzamo. Thanks for your interest. I hope you'll find median lines useful.

I'm going to be defining criteria for pivots whether C or otherwise. The criteria will be rule-based but it doesn't mean they can't be broken.

How one looks at a chart and how much data one is looking at on a chart will influence greatly how one defines all pivots and of course when one feels a C pivot has occurred.

Tim Morge has done extensive work on the probabilities of price reaching the median line and other probabilities having to do with median lines.

As this thread progresses it will become apparent how one can approach drawing median lines with purpose rather than randomly. It really has to do with swings.

The term "pitchfork" was not used by Andrews. Andrews started off just drawing a median line without using upper and lower median lines. Later the upper and lower median lines were added. I've heard that he actually did not like this term but it has become common nomenclature. I prefer "median lines".

USDJPY 20 min
For overall context


Zooming in. The median line defines the swings. A to B is the swing of interest. C to D is the anticipated swing. However C to D really doesn't offer a decent 3:1 trade so if a trade were to occur here one would likely need to anticipate that price would proceed through the median line and proceed to the upper median line as a target.

The green horizontal lines are drawn on the bearish portion of a bearish wrb outside bar that led to a LL. Price came back and took out this bar and then made a relative new high compared to the last small swing (see blue lines). When this happened pivot C became apparent to me.

For now watching.

First I want to say that by posting my live trades I am not implying or suggesting that anyone should take the same trade. I will reveal my trades at my own discretion and do so to show that I'm not just a chartist but a trader.

Price has reached and gone through the median line and this suggests to me it may proceed to the upper median line. Using my R:R tool I've defined a minimum 3:1 trade and thus it is shown with limit entry, SL and target.

PIVOTS

A little about pivots.

Pivots are areas where price has either turned form bearish to bullish or bullish to bearish. It can be seen on a bar level, swing level and larger structure levels.

When price is trending down or up we can say that price is on the left side of a potential pivot. At some point it will become obvious that price has turned and when it does it is then on the right side of the pivot. This can be obvious or not so obvious.

Although pivots often occur with specific and readily identifiable price action they also often occur without price action that is pleasing or satisfying to us. Therefore we can make all kinds of definitions, patterns and setups or what have you and we will never identify all the ways that pivots occur.

Pivots occur when price SWAPS from the left side to the right side.

If price is trending down we know that bearish price action is occurring. At some point we will see bullish price action that definitively takes out or SWAPS the bearish price action. The same is for a bullish trend that gets SWAPPED with bearish price action.

Below is a chart with a couple of SWAPS. Rather than give a blow-by-blow I'll let you study them. I encourage you to look at 100s of charts and observe with detail what happens when price SWAPS.

Make no mistake pivots are crucial when deciding to trade or not to trade and you will leave behind many trades because the pivot was not readily identifiable.

Anyone care to say whether or not a pivot has been made here? If so why? If not why?

if price zoom the blue box maybe

This structure is a "V". They occur regularly and should be taken seriously but they don't necessarily signal a trade in one direction or the other. What happens after it's formation is what's important.


The modified schiff median line is often an excellent tool to use when these occur. Modified schiffs are similar to standard median lines in that they still project price. So here A-B still projects C-D as shown. We can see that C-D is quite steep and although price can and does move this quickly sometimes it takes more time as it did here. So we can become interested when price reaches the lower median line. Therefore modified schiffs tend to act as channels. Therefore we usually do not use the center median line but rather the opposite or outside line after C forms.


Even though price didn't immediately move to D we can get interested when price approaches the lower median line. Structure to the left may provide clues and the pink arrows are meant to show price action that suggests buyers are lurking in this area.

This is the current EURUSD Weekly chart. Just to show that median line principles apply across all time frames.
The swing from A to B projects a possible move in price from C to D. This move is in line with the current uptrend on this weekly chart. The brown rectangle depicts an area of prior sellers that has been taken out. The pink arrows show price action that supports the idea that there were sellers here and that buyers stepped in. Price is now testing this area and on Friday there was a bullish WRB signifying that buyers are here. Price is testing a bearish tail or pinbar. If price takes this tail out things will be interesting. The red lines just show the largest swing in the smaller downtrend.

Hello Abe, thank you for this thread. I find the subject really interesting. I knew the system of the median lines, but never took it into serious study. I 'feel' that market really moves according to inner dynamic forces. Of course it recalls me harmonic trading. But it implies so many figures, which require a long backtesting to select.
I find this is much simpler. Also, it offers a not less important aspect, which is a great R:R.
This allows us -probably- to recover the frequent failures (I'm currently testing it).
What I also appreciate is the channel formed in correspondance of the "V" formations.
So, thank again, and keep on posting.