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In his Commodities Course, W.D. Gann wrote about Double and Triple Tops and Bottoms, calling them strong levels of support and resistance. The Australian Dollar (chart code FXADUS in ProfitSource software) has made a number of these formations in recent times, as illustrated in Chart 1 below:
Chart 1
click to enlarge
Gann said that Double and Triple Tops were a good place to sell and that Double and Triple Bottoms were a good place to buy.
Certainly, if you had been short on the Australian Dollar out of the February, 2012 Double Tops or the August/September, 2012 Double Tops, there was indeed money to be made. Similarly, buying at the Triple Bottoms in October, 2012 was also potentially profitable.
Coming up out of the October low, the Australian Dollar again created a Triple Top, although in this case it was on a smaller picture, as shown in Chart 2 below:
Chart 2
click to enlarge
Note that the Australian Dollar held around the 1.04 level, making three daily swing tops at this level.
At times like this it is important to pay attention to the bigger picture. The Australian Dollar was coming up off Triple Bottoms and the retracement of the June to September range was less than 50%, indicating a strong market.
Also, each time the Aussie Dollar fell from these minor tops, it made a higher swing bottom.
The 1.04 level was an important resistance level because it was the 50% milestone of the range from the September top to the October low, as shown in Chart 3 below:
Chart 3
click to enlarge
In Chapter 2 of his Commodities Course, Gann wrote that “…it is very important to watch a market when it reaches the same level the fourth time, as it nearly always goes through.”
In the case of the Australian Dollar, this is exactly what happened on Tuesday, 6 November at around 2:30pm, when the RBA announced that interest rates would be kept on hold at 3.25%.
The Australian Dollar approached the old tops (the highest was 1.0418 on 2 November) and then broke above them, closing at 1.0429. ‘Breaking of Multiple Bar Chart Tops’ is discussed in David Bowden’s Number One Trading Plan, available from Safety in the Market. At the time of writing (11am on 7 November, 2012), the Australian Dollar is holding above these levels at 1.0430.
If the Australian Dollar had more short-term downside potential, this would have been a good place for that to begin – at a Triple Top on a 50% retracement.
However, with the market reaching this level a fourth time – and going through it – it looks like the post-float All-Time-High of 1.1080 will be tested before the year is out.
Be Prepared!
Mathew Barnes
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