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Third Touch Confirms the Trendline

Third Touch Confirms the Trendline

Richard Krivo, Trading Instructor

Instructor’s Response:

Using the chart posted, the trend would be to the upside as you suggest . Entering a trade on the third touch of a trendline for confirmation is a good concept to employ.  The idea behind this three touch approach is that if you just connect two points on a chart, well, any two random points can be connected with a straight line and they may or may not be meaningful relative to the trade.  However, if three points on a chart can be connected with a straight line, now we have something that can be used in our trading is shown with the trendline on this historical chart of the EURUSD below.
Once the third candle that touches trendline support closes and has respected the trendline...meaning the body of the candle has not closed below it...a trader can take a long position at the opening of the next candle with a stop below the longest wick.  In a downtrend the process would just be reversed.
chart 5 18 10

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.