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 BustedPatterns Candles ChartPatterns EventPatterns Small Patterns
 Market Industrials (^DJI): Transports (^DJT): Utilities (^DJU): Nasdaq (^IXIC): S&P500 (^GSPC): As of 08/16/2018 25,559 396.32 1.6% 11,190 75.41 0.7% 741 8.70 1.2% 7,807 32.40 0.4% 2,841 22.32 0.8% YTD 3.4% 5.4% 2.4% 13.1% 6.2% Tom's Targets    Overview: 08/14/2018 26,200 or 24,700 by 09/01/2018 11,400 or 10,700 by 09/01/2018 750 or 700 by 09/01/2018 8,250 or 7,600 by 09/01/2018 2,900 or 2,775 by 09/01/2018 CPICPI: on 7/2/18

During research for my book, Encyclopedia of Chart Patterns Second Edition (pictured on the right), I uncovered many facts about double tops. I discovered that they fail 65% of the time, but that rate is deceiving. If you look at any twin peak pattern, price will fail to close below the valley formed between those two peaks 65% of the time. Price rises instead of dropping.

Adam is a term that describes how the top looks, in this case, a narrow, pointed top, perhaps with a one-day upward spike. Eve tops are more rounded looking and wider. If they have spikes, they tend to be more numerous and shorter. Many times the difference between Adam and Eve is the width of each over their entire height. Adam tops tend to remain narrow but Eve tops widen over their height. When trying to decide which is which, ask yourself if the two tops appear different or similar. With Adam & Adam, the two should look similar (both narrow).

If you wait for price to close below the valley (the so-called confirmation price) then the pattern performs quite well. In fact, the Adam & Adam double top is the second best performing combination of Adam and Eve double tops (second only to Eve & Eve double tops). The average decline in a bull market is where the Adam & Adam double top shines. For more information, see pages 275 to 290 of Encyclopedia of Chart Patterns, Second Edition and the following...

Overall performance rank (1 is best): 4 out of 21
Break even failure rate: 8%
Average decline: 19%
Pullback rate: 61%
Percentage meeting price target: 72%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

 Characteristic Discussion Price trend Upward leading to the pattern. Shape Two distinct tops that look similar, usually twin spikes poking above the surrounding price landscape. Adam tops are narrow, inverted V's. Valley The valley drop between the tops should measure at least 10%, but allow exceptions. Top price The variation between price peaks is small, less than 3%. The best performance comes from peaks less than 6% apart. The two tops should appear to peak near the same price. Separation The twin peaks are usually 5 to 7 weeks apart. Wider than 8 weeks and performance deteriorates. Confirmation The double top confirms as a true double top once price closes below the valley between the two peaks. Volume Usually higher on formation of the left peak than the right, and trends downward.
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 Trading Tactic Explanation The Measure Rule Measure rule Compute the height from the highest peak (point B in the figure to the right) to the lowest valley (A) between the two peaks and then multiply it by the above “percentage meeting price target.” Subtract the result from the breakout price (A) to get the target (C). Also, see the double top study. for a new price prediction method. Stop Place a stop loss order a few pennies above the highest peak (point B in the figure to the right) in the double top chart pattern. If that is too far away, then consider a volatility stop. Price velocity A study concludes that a high velocity move leading to the chart pattern results in a high velocity move after the breakout. Price reversal Price must have something to reverse, so if the rise leading to the double top is small, expect a small decline. Confirmation Wait for confirmation – price to close below the valley floor (point A in the figure to the upper right). If you don't wait, there's a 65% chance that price will continue higher without confirming the double top. Trend end If a double top appears after a long-term DECLINE, confirmation of the top may mean that the end of the decline is near (10% to 20% below and a month away). Trends Avoid a long term trend leading to the pattern as those produce the smallest declines post breakout. Yearly high For best performance, double tops with breakouts in the highest third of the yearly price range perform best, but the performance difference between the other ranges is small. Volume trend A downward volume trend results in the best post breakout performance. The link to the left shows an example and lists other chart patterns that do best after a downward volume trend. The following link provides performance statistics. Pullbacks Pullbacks hurt post breakout performance. The link to the left defines pullbacks and the following link discusses performance.
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The figure to the right shows an example of an Adam & Adam double top chart pattern. The two Adam tops are narrow peaks with a good decline between them (point B) and they appear after an upward price trend. The Adam & Adam double top confirms as a valid double top when price closes below point B, shown as the horizontal blue line.

To calculate a price target, subtract the price of valley B (the lowest valley between the two Adam tops) from the higher of the Adam peaks (A). That finds the height. Multiply the height by 72% (the percentage meeting price target from Important Bull Market Results table near the top of this page) and subtract the result from B. That gives a target shown as a red horizontal line on the above chart (point C).

-- Thomas Bulkowski

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