Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.
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 drops.
Adam and Eve are terms that describe how the top looks. Adam is 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 substantially over their height. When trying to decide which is which, ask yourself if the two tops appear different or similar. With Eve & Eve, the two should look
similar (both wide).
The Eve & Eve double top is the best performing of the Adam and Eve combinations of double
tops. It has a large break even failure rate, but a decent decline and large rise after the trend ends. If you can tell
when price has bottomed, then that's the time buy. The Eve & Eve double top is what most chartists call the
classic double top.
Important Bull Market Results for Eve & Eve Double Tops
Overall performance rank (1 is best): 2 out of 21
Break even failure rate: 11%
Average decline: 18%
Pullback rate: 59%
Percentage meeting price target: 73%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Eve & Eve Double Top
Eve & Eve Double Top Identification Guidelines
|Price trend||Upward leading to the pattern.|
|Shape||Two distinct tops that look similar. An Eve top is rounded and wide looking, but sometimes has several short spikes poking out.|
|Valley||The valley drop between the tops should measure at least 10%, but allow exceptions. The figure to the right shows this for a typical double top chart pattern.|
|Top price||The variation between price peaks is small, less than 3%. The two tops should appear to peak near the same
price. The figure to the right shows a 5% variation for a typical double top.|
|Separation||The twin peaks are several weeks apart with most falling in the 2 to 6 week range. The figure to the right
shows 2 months for a typical double top.|
|Confirmation||The double top confirms as a true double top once price closes below the valley between the two peaks. The
lowest red line on the figure to the right shows this.|
|Volume||Usually higher on formation of the left peak.|
Eve & Eve Double Top Trading Tips
|Measure rule||Compute the height from the highest peak (point B on
the chart to the right) to the lowest valley (A) in the pattern then multiply it by the above “percentage meeting price target.”
Subtract the result from the breakout price (A) to get the target (C).|
|Price reversal||Price must have something to reverse, so if the rise leading to the double top is small, expect a small decline.|
|Price velocity||A study concludes that a high velocity move leading to the chart pattern results in a high velocity move after the breakout.|
|Confirmation||Wait for confirmation – price to close below the valley floor (point A in the figure to the right). If you
don't wait, there's a 65% chance that price will continue higher without confirming the double top.|
|Trend end||A short-term rise leading to the double top results in the best post breakout performance.|
|Trends||Avoid a long term trend leading
to the pattern as those produce the smallest declines post breakout.|
|Yearly high||Double tops within a third of the yearly high perform best.|
|Volume trend||The volume trend has no influence on post breakout performance.|
|Pullbacks||Pullbacks hurt post breakout performance.|
The Measure Rule
Eve & Eve Double Top Example
The above figure shows an example of an Eve & Eve double top chart pattern. Both Eve tops appear rounded, wide,
not narrow and pointed like their Adam counterparts. The Eve & Eve double top confirms as a true double top when
price closes below the confirmation line, shown in the above chart as a blue horizontal line. A pullback brings the
stock back to the breakout price before the decline resumes.
-- Thomas Bulkowski
Other Eve & Eve Double Top Examples
Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Budget: A method for going broke methodically.