Double and Triple Tops and Bottoms
Student’s Question:We hear about double tops and bottoms. I know I have seen triple tops and bottoms on the charts. Is there any special significance to them? Thanks.Instructor’s Response:On the historical 1 hour chart of the USDCHF 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.
Lastly, keep in mind that if a double or triple top/bottom signals taking a trade in the direction of the Daily trend, that would be a higher probability entry.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.