Power Course Instructor’s Response:
On the chart below, examples of a double bottom along with a triple top and a triple bottom can be seen.
The way a double top/bottom would be traded is that when the second test of support/resistance takes place and is respected (by that I mean the body of the candle does not close below support or above resistance) the trade can be taken short with a stop above resistance in the case of a double top and can be taken long with a stop below support in the case of a double bottom.
Notice on each example below, after the second test, in each case, price action moved enough to generate a profitable trade.
Now, in the case of a triple top/bottom, price action comes back to test the S/R level for a third time. Should that level hold for the third time, in the two examples shown below, a fairly dramatic move occurs in the opposite direction…a strong bullish move after a triple bottom and a strong bearish move after a triple top. The third test would be traded just as the second test was traded. Enter on the open of the next candle after the test with a stop below support in the case of a bottom or a stop above resistance in the case of a top.
While moves of this magnitude on this one hour chart will not always be the case, if a Support or Resistance level holds through the third test, we can be fairly certain that it represents some pretty formidable strength.
DailyFX provides forex news on the economic reports and political events that influence the currency market.
Learn currency trading with a free practice account and charts from FXCM.
