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  Up arrow14,700 or 12,400 by 06/01/2022
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  Up arrow12,800 or 11,000 by 06/01/2022
  Up arrow4,150 or 3,700 by 06/01/2022
CPI (updated daily): Arrows on 5/23/22
As of 05/26/2022
  Indus: 32,637 +516.91 +1.6%  
  Trans: 14,142 +397.70 +2.9%  
  Utils: 1,022 +1.32 +0.1%  
  Nasdaq: 11,741 +305.91 +2.7%  
  S&P 500: 4,058 +79.08 +2.0%  
YTD
-10.2%  
-14.2%  
 +4.2%  
-25.0%  
-14.9%  
  Targets    Overview: 05/15/2022  
  Up arrow33,500 or 30,500 by 06/01/2022
  Up arrow14,700 or 12,400 by 06/01/2022
  Up arrow1,050 or 940 by 06/01/2022
  Up arrow12,800 or 11,000 by 06/01/2022
  Up arrow4,150 or 3,700 by 06/01/2022
CPI (updated daily): Arrows on 5/23/22

Bulkowski on Pattern Pairs: Eve & Eve Double Bottoms

 

Initial release: 12/10/2021.

The idea behind pattern pairs is to pick a chart pattern type (like Eve & Eve double bottoms) to buy and another to sell (like double tops). You buy the upward breakout from the double bottom, hold for a few years, and sell when a double top appears and breaks out downward. Along the way, you give price a chance to rise far enough to overcome those trades which are stopped out for a loss. This is a trend-following strategy.

Trading Eve & Eve Double Bottoms: Summary

Picture of the pattern pairs.

The figure illustrates the idea for trading pattern pairs, where price is the red line and the boxes are chart patterns. This articles assumes you buy an upward breakout from a Eve & Eve double bottom. On the sale side, you can sell the first bearish chart pattern which comes along, or you can wait for your favorite bearish chart pattern to appear and sell then.

In the following discussion, if I write "double bottom", I mean an Eve & Eve double bottom.

Here's a list of the top five performing sell signals, based on annualized gain (annualized because the hold time is often years, in parenthesis).

Sell a...

The following list shows the expected performance of chart pattern pairs, ranked by their expectancy. Expectancy is a way of gauging winning and losing trades and how much money you might make trading a pattern pair. I put the expected profit per trade, per share, in parenthesis.

Sell a...

To improve performance, try these tips.

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Trading Eve & Eve Double Bottoms: Entry and Exit Conditions

The databases I built over several decades doesn't identify every chart pattern. There may be plenty of double tops over the years, for example, that I didn't catalog on the way to the one I did catalog. So buying an upward breakout from a double bottom and selling at the double top I cataloged would be different than choosing to sell a different double top. However, the following analysis does give a real-world flavor for how well you might do trading chart patterns if you follow the pattern pair strategy.

Here's what I used in my analysis.

I used the following 43 chart patterns in the analysis, but some only applied if they were busted.

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Trading Eve & Eve Double Bottoms: Stops

I used a stop loss order set a penny below the bottom of the double bottom. Price on the way down may have gapped below the stop price (for the sale price), so I used the lower of the stop price or the opening price on the day of sale).

For trailing stops, I removed the stop loss order and used a trailing stop set at 10%, 15%, 20%, or 25% below a peak, never lowering the stop value, but raising it if a higher peak came along during the trade.

In Table 1, I calculated the percentage net gain (the average of gains and losses) when using various trailing stop loss amounts (10%, 15%, 20%, and 25%) for all tested chart patterns according to the busted/non-busted buy/sell configuration. In parenthesis is the size of the average loss so I could detail how losses change with various stop loss orders.

For example, if I tested non-busted Eve & Eve double bottoms and sold various non-busted patterns (Eve & Eve double bottoms, broadening tops, head-and-shoulders tops, and so on), I made an average of 80% ("Stop Loss Only" column) after having a stop loss order in place. Losses averaged 17%. Replacing the stop loss with a 10% trailing stop cut the gain to 6% but also trimmed the average loss to 5%. Using a 25% trailing stop allowed me to keep more money, 26%, but losses climbed to 14%. If I didn't use any type of stop, the gain averaged 130% with losses averaging 31%.

The results show that:

Table 1: Various Trailing Stop Settings: Net Profit and (Average Loss)
Data 10%  15%  20%  25%  Stop Loss 
Only
 No Stop
Non-busted buys, non-busted sales 6% (-5%)  10% (-8%)  18% (-11%)  26% (-14%)  80% (-17%)  130% (-31%) 
Non-busted buys, busted sales 6% (-5%)  10% (-8%)  18% (-11%)  25% (-14%)  88% (-17%)  140% (-29%) 

Trading Eve & Eve Double Bottoms: Busted Patterns

Trading using a busted chart pattern often results in worse performance than using non-busted patterns (at least for Eve & Eve double bottoms as the buy signal).

I compared the performance of sell signals for 22 different chart patterns and found that only 36% of the time did a busted pattern outperform a non-busted pattern. To do this, I averaged the performance of each chart pattern and then compared that average to its busted counterpart in 22 contests. The pattern with the higher average gain won.

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Trading Eve & Eve Double Bottoms: Non-busted Buy, Non-Busted Sale

Picture of a busted pattern pair.

Table 2 shows statistics I collected for Eve & Eve double bottoms using the trading rules described above and shown in the figure. I placed a stop loss order priced a penny below the bottom of the double bottom (after buying).

For example, if you were to buy the upward breakout from a double bottom chart pattern and hold it until you encountered a broadening bottom (the first chart pattern listed in the table), but one with a downward breakout, you'd make an average of 58% (annualized: 20%, ranking 37th) on the 220 (72 winners, 148 losers) trades. That's an average of 209% on your winners, and 16% average loss on your loser. You'd find that only 33% of the trades made money.

If you removed the stop loss order and just held on until the broadening bottom with a downward breakout appeared, you'd make an average of 99% per trade.

The expectancy posted a loss of $2.10 per share per trade which ranks 60th where 1 is the best value. In other words, if you traded these two chart patterns, you'd expect to lose money. Because the expectancy is negative, I'd pick another pattern pair to trade.

Trades with sample counts below 30 are not ranked.

Table 2: Statistics for Eve & Eve double bottoms
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom209%-16%58%20%3799%72/14833%-$2.1060
Broadening top267%-18%103%40%8152%180/24442%$15.746
Broadening formation, right-angled and ascending173%-16%54%21%3481%87/14837%$3.8147
Broadening formation, right-angled and descending138%-19%39%16%4554%56/9737%$4.5342
Broadening wedge, ascending277%-17%110%46%3169%61/8043%$11.6212
Broadening wedge, descending138%-20%59%18%3985%56/5650%$6.9727
Bump-and-run reversal top129%-18%50%25%22104%222/26246%$4.9839
Diamond bottom112%-16%31%16%4479%27/4637%$1.1156
Diamond top160%-17%60%22%28106%70/9143%$5.3037
Adam & Adam double top522%-16%195%57%2269%384/59439%$19.575
Adam & Eve double top284%-16%94%31%17156%183/31837%$14.807
Eve & Adam double top272%-17%91%30%18177%204/34537%$8.3621
Eve & Eve double top239%-16%80%32%16144%228/37538%$12.4511
Falling wedge340%-18%87%40%7117%38/9229%$10.5715
Head-and-shoulders top288%-17%103%38%11151%637/97939%$7.6022
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders, complex top127%-16%45%21%3371%127/17242%$4.4643
Rectangle top168%-18%57%23%2589%99/14840%$6.9826
Rising wedge156%-18%57%25%2393%193/25743%$5.8930
Rounding top420%-17%109%39%10132%76/18729%-$0.8059
Ascending scallop141%-20%32%16%4860%32/6732%$4.1546
Descending scallop187%-16%49%21%3284%255/53832%$5.4935
Scallop, inverted and ascending215%-19%39%13%52144%15/4525%$1.4353
Scallop, descending and inverted208%-19%47%20%3672%133/32329%$4.7941
Triangle, ascending128%-18%39%17%41101%99/15739%$4.3044
Triangle, descending135%-19%39%17%4064%117/19637%$1.9651
Triangle, symmetrical145%-18%39%16%4389%288/53835%$2.9550
Triple top296%-17%96%35%13153%461/81836%$10.6914
Rectangle bottom114%-18%13%7%5717%53/17323%-$2.4761
3 falling peaks257%-17%67%25%24117%434/97531%$7.0924
Roof169%-18%68%22%27132%33/3946%$5.4836
Roof, inverted164%-19%68%22%26134%49/5448%$12.6410
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Eve & Eve Double Bottoms: Non-busted Buy, Busted Sale

Picture of a busted pattern pair.

The figure shows an example of how this trade unfolds.

A bullish chart pattern appears and you buy at the breakout. Continue holding until your selected chart pattern appears. The chart pattern is bullish because it has an upward breakout but then things go wrong. Price reverses. Sell when the stock dips below the bottom of the chart pattern (meaning it busts the upward breakout).

Table 3 shows the performance statistics for this setup (buying a Eve & Eve double bottom and selling only after a busted chart pattern). A stop loss order was used and priced a penny below the bottom of the double bottom (after buying). I removed the rank of any entry with fewer than 30 trades.

For example, buying a double bottom with an upward breakout in a bull market and selling a busted broadening bottom shows winning trades making an average of 153%. Losing trades lost 18%, giving a net of 16%, and ranking 46 (where 1 is best). Because the hold time is often years long, the annualized gain is 16%.

If you traded this without a stop, the net gain climbed to 86%. Of the stocks I looked at, I found 78 trades with 45% of them winning. Expectancy was $9.95 per share, ranking 16th where 1 is best.

Table 3: Statistics for Normal Buy, Busted Sale
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom153%-18%59%16%4686%35/4345%$9.9516
Broadening top227%-16%101%30%19165%87/9348%$10.8713
Broadening formation, right-angled and ascending114%-18%32%14%5161%23/3838%$1.4652
Broadening formation, right-angled and descending54%-14%11%5%6028%23/4037%$1.3254
Broadening wedge, ascending246%-17%109%146%12/1348%
Broadening wedge, descending124%-18%58%19%3882%24/2153%$5.7932
Bump-and-run reversal bottom83%-16%22%9%56102%14/2338%$1.3155
Cup with handle85%-15%11%5%5930%9/2626%$0.5458
Diamond bottom195%-13%66%17%4286%13/2138%$8.4520
Diamond top253%-19%87%30%20149%26/4139%$8.8019
Adam & Adam double bottom469%-15%153%44%4232%110/20635%$21.693
Adam & Eve double bottom713%-15%208%71%1292%50/11331%$27.171
Eve & Adam double bottom502%-15%133%39%9179%40/10029%$6.9428
Eve & Eve double bottom402%-16%131%41%6189%49/9035%$22.042
Falling wedge106%-18%36%14%4949%30/3943%$5.6133
Head-and-shoulders bottom187%-16%64%21%31102%126/19539%$9.0718
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders complex bottom79%-16%17%6%5852%18/3435%$5.5134
Rectangle top157%-19%49%21%29158%48/7639%$5.1938
Rising wedge80%-17%22%10%5559%23/3440%$3.7248
Round bottom10%-20%-17%18%2/1413%
Rounding top95%-18%10%5%6125%8/2425%$0.7857
Ascending scallop159%-18%45%21%3090%31/5735%$3.5649
Descending scallop131%-16%27%16%4776%15/3629%$4.9140
Scallop, inverted and ascending289%-17%110%43%5150%55/7742%$20.124
Scallop, descending and inverted87%-21%33%14%5056%24/2450%$7.0225
Triangle, ascending262%-20%86%34%14127%47/7838%$13.539
Triangle, descending94%-16%27%13%5343%42/6739%$4.2545
Triangle, symmetrical264%-17%94%34%15138%152/23240%$6.2929
Triple bottom324%-15%111%37%12165%142/23937%$7.5923
Rectangle bottom187%-16%53%20%3557%23/4534%$9.3217
3 rising valleys225%-15%79%27%21145%83/12939%$14.608
Roof157%-13%61%115%10/1343%
Roof, inverted74%-19%28%10%5474%18/1850%$5.8731
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Eve & Eve Double Bottoms: Performance Improvements

Here are a few ideas the data suggested which may improve performance of your pattern pairs trading.

Trend Start: Short, Medium, or Long

Find the trend start for your double bottom. Often you can just look at a chart and see where the trend begins. If not, or you want to be sure, then the glossary describes how to find it.

Determine the length from the trend start to the pattern's start: short term (less than 3 months), medium term (3 to 6 months) or long term (more than 6 months).

Table 4 shows the results for the combinations of busted/non-busted trades and the resulting performance.

Buying double bottoms with a short-term (up to 3 months) duration from the trend start to the pattern's start outperformed the other two durations.

Table 4: Short (S) Medium (M) or Long (L) Trend Start and Performance
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternS113% M16% L47%S126% M13% L51%

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Moving Averages: 50- and 200-Day SMA

I checked two moving averages at buy time, 50- and 200-day simple moving averages (not as a crossover setup). I compared the breakout price to the value of the moving average. Table 5 shows the performance of buying or selling busted or non-busted patterns when the breakout price was above (A) or below (B) the 50-day simple moving average (SMA).

Buying Eve & Eve double bottoms with breakout prices above the 50-day moving average showed better performance than from those below the SMA.

Table 5: Above (A) Below (B) 50-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternA101% B57%A123% B50%

Table 6 shows the results of using a longer moving average, the 200-day. Traders often use this as a proxy for the long-term trend.

Here we see a wider performance difference between the two types of patterns (busted and non-busted). At the time of the buy, if price is below the 200-day moving average, you improve the chances of a more profitable trade.

Table 6: Above (A) Below (B) 200-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternA46% B107%A43% B125%

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Selling First Bearish Chart Pattern

The prior discussion assumes you buy a double bottom and sell a chart pattern of your choosing, such as a downward breakout from a head-and-shoulders top (you wait for one to appear). What if you sold the first bearish chart pattern which comes along? How would you do?

Table 7 shows the results sorted by the type of patterns involved (busted or non-busted). For example, if you buy an Eve & Eve double bottom and sell the first non-busted chart pattern which comes along, you'd make 17% on average. Annualized, you'd make 41%. This compares to a 30% annualized gain if you sell a designated pattern (like you waited for a double top before selling, which may or may not be the first bearish chart pattern to come along).

The bottom half of the table shows expectancy for the combinations. For example, the best performance comes from buying and selling non-busted patterns.

Table 7: Selling the First Bearish Pattern (Annualized)
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted pattern17% (41% v 30%)17% (31% v 31%)
Expectancy (Below)
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted pattern$3.45$1.34

-- Thomas Bulkowski

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See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy

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