RESOURCES: Reaction Lines.... The basics

The Power of historical median lines (Andrews pitch forks) and the importance of horizontal lines and their effect on price. This is just one of many applications of historical ML's and their reaction lines.

• The higher the time frame any fork is drawn the greater the effect on price.
• All pivots are not created equal !!
• The angle of any line is proportionate to its effect on price.

Lets take a current example. AUDUSD. Below is a monthly chart going back to the early 1990's. Two PF's have been drawn and using the automatic MT4 PF indicator the reaction lines are automatically inserted.

 

 Below we observe price within the main body of the PF above the two horizontal centre lines. Several other PF's have been added including an FNL PF seen in mauve.

Here is the detail in the daily time frame

 we drop down to a lower TF to observe price action in and around the centre lines

  

and more detail: 

Highlighted are numerous reaction points

 and below the most recent price activity seen below

It can be clearly  observed that horizontal high time frame median and reaction lines offer solid support and resistance. Our empirical study shows them to possess the highest probability of all median and reaction lines and they can be used for HP trade entries in a myriad of trading styles.

And if further proof is needed here are some subsequent charts of price action that followed after 12 th June 2015 in the charts above and below we see price action uptil the 2nd July 2015:

 Below you can see the FNL pitchfork using First and Last pivots to give not only another useful horiontal CL but some impressive reaction lines!

Despite the overall directional bias of AUDUSD being down we can see how momentum and energy are expended in this sideways period with Action-Reaction off these important horiontal Centre Lines before price breaks lower below the black CL and makes a lower low. However this is the "The line that keeps on giving" as you can see below we have made yet another low pivot and taken an long entry.
Remember all these lines are drawn by the MT4 custom PF indicator tool so there is no subjective bias and we deal objectively with the trade entry based in both the visual components ( price action around these RL/MLs) and the B-Line indicator template (not shown here) consisting of long and short stochastics and MACD panel.

 In this one min chart we have lost the mauve ML but this is due to scaling and other issues that we will not deal with here but this is the reason I often manually overlay significant stucture.