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 +27.4%  
  Targets    Overview: 12/02/2024  
  Down arrow44,000 or 46,000 by 12/15/2024
  Down arrow17,025 or 18,000 by 12/15/2024
  Down arrow1,025 or 1,100 by 12/15/2024
  Up arrow20,000 or 18,500 by 12/15/2024
  Up arrow6,200 or 5,900 by 12/15/2024
As of 12/05/2024
  Indus: 44,766 -248.33 -0.6%  
  Trans: 16,976 -190.93 -1.1%  
  Utils: 1,047 +2.22 +0.2%  
  Nasdaq: 19,700 -34.86 -0.2%  
  S&P 500: 6,075 -11.38 -0.2%  
YTD
 +18.8%  
 +6.8%  
 +18.8%  
 +31.2%  
 +27.4%  
  Targets    Overview: 12/02/2024  
  Down arrow44,000 or 46,000 by 12/15/2024
  Down arrow17,025 or 18,000 by 12/15/2024
  Down arrow1,025 or 1,100 by 12/15/2024
  Up arrow20,000 or 18,500 by 12/15/2024
  Up arrow6,200 or 5,900 by 12/15/2024

Bulkowski on Pattern Pairs: Eve & Eve Double Tops

Initial release: 12/10/2021.

The idea behind pattern pairs is to pick a chart pattern type (like broadening bottoms with upward breakouts) to buy and another to sell (like double tops). You buy the upward breakout from the broadening 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 Tops: 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 a busted Eve & Eve double top (price breaks out downward, drops no more than 10%, reverses, and closes above the top of the double top). Buy as price rises above the top of the pattern.

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 this article, if I refer to a double top, assume I mean an Eve & Eve double top, or EEDT.

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).

Buy a busted Eve & Eve double top and 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.

Buy a busted Eve & Eve double top and sell a...

To improve performance, try these tips.

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Trading Eve & Eve Double Tops: 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 along the way to the one I did catalog. So buying a busted head-and-shoulders top and selling the downward breakout from a 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 Tops: Stops

I used a stop loss order set a penny below the bottom of the busted Eve & Eve double top. 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 busted Eve & Eve Double Tops and sold various non-busted patterns (broadening bottoms, broadening tops, head-and-shoulders tops, and so on), I made an average of 27% ("Stop Loss Only" column) after having a stop loss order in place. Losses averaged 10%. Replacing the stop loss with a 10% trailing stop cut the gain to 4% but also trimmed the average loss to 6%. Using a 25% trailing stop allowed me to keep more money, 33%, but losses climbed to 15%. If I didn't use any type of stop, the gain averaged 59% with losses averaging 25%.

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
Busted buys, non-busted sales 4% (-6%)  7% (-8%)  16% (-11%)  33% (-15%)  27% (-10%)  59% (-25%) 
Busted buys, busted sales 4% (-5%)  6% (-8%)  15% (-11%)  24% (-15%)  14% (-10%)  51% (-22%) 

Trading Eve & Eve Double Tops: Busted Patterns

A busted Eve & Eve double top has a downward breakout but price drops no more than 10% before reversing and moving above the top of the pattern.

In 22 contests (selling 22 different chart pattern types, depending on which apply), I compared the performance of buying busted EEDTs and selling non-busted patterns with selling busted patterns. Selling a busted pattern wins a contest (outperforms selling a non-busted pattern) only 23% of the time.

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Trading Eve & Eve Double Tops: Busted Buy, Non-Busted Sale

Picture of a busted pattern pair.

The figure shows the setup for this scenario. When price busts the downward breakout from a bearish Eve & Eve double top, buy. Sell after a downward breakout from a non-busted target chart pattern.

Table 2 shows the performance of this scenario. A stop loss order was used and priced a penny below the bottom of the double Top (after buying).

For example, buying a busted Eve & Eve double top in a bull market (the entry price is really the higher of a penny above the top of the double top or the opening price) and selling after the downward breakout from a broadening bottom shows winners averaging gains of 227%. Losses average 10%, for a net of 60%. Because trades are often years long, annualized the net becomes a loss of 27%. Only 61 trades occurred with a win/loss ratio of 30%. This scenario ranks the net gain as 2nd among the two tables (2 and 3). If you traded this as a buy-and-hold position, meaning no stops were used, the net gain climbed to a gain of 88%. Expectancy was a loss of $1.15 per share, ranking 39th where 1 is best. As good as the numbers suggest, expectancy suggests you'd be hard pressed to make money trading this pair.

Trades with sample counts below 30 are not ranked.

Table 2: Statistics for Busted Buys, Non-Busted Sales
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom227%-10%60%27%288%18/4330%-$1.1539
Broadening top112%-12%25%17%876%36/8630%$2.3525
Broadening formation, right-angled and ascending51%-12%9%5%3546%18/3534%$2.2826
Broadening formation, right-angled and descending45%-13%2%1%3725%11/3226%$2.2028
Broadening wedge, ascending299%-14%69%54%1101%12/3327%$1.2334
Broadening wedge, descending79%-11%28%16%1136%14/1844%$5.5413
Bump-and-run reversal top66%-11%21%12%2147%61/8542%$7.857
Diamond bottom146%-11%25%34%5/1723%
Diamond top63%-10%17%11%2759%20/3437%$4.8816
Adam & Adam double top167%-9%40%20%486%104/27128%$6.4210
Adam & Eve double top126%-10%28%14%1468%43/11328%$6.649
Eve & Adam double top144%-10%30%14%1560%46/13226%$9.296
Eve & Eve double top107%-11%20%12%2356%46/13226%$10.834
Falling wedge168%-10%25%26%5/2020%
Head-and-shoulders top105%-10%23%13%1660%150/36529%$3.9522
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders, complex top66%-11%13%8%3037%23/5231%$1.4232
Rectangle top79%-10%21%9%2961%23/4335%$5.7111
Rising wedge122%-11%20%16%1057%29/9523%$2.2527
Rounding top135%-11%25%11%2445%21/6524%-$0.3037
Ascending scallop25%-11%-1%-1%3924%11/2630%$1.3233
Descending scallop83%-11%17%11%2553%70/16130%$4.5120
Scallop, inverted and ascending202%-13%95%107%8/850%
Scallop, descending and inverted130%-12%33%21%345%37/7832%$4.5219
Triangle, ascending126%-11%37%17%973%26/4835%$7.708
Triangle, descending152%-11%36%19%561%24/5929%-$0.0336
Triangle, symmetrical107%-12%25%13%1951%73/15732%$5.0515
Triple top122%-11%24%13%1863%98/27626%$5.1614
Rectangle bottom150%-11%45%19%643%14/2635%$15.292
3 falling peaks123%-11%28%15%1366%108/26129%$9.305
Roof109%-10%13%47%5/2119%
Roof, inverted83%-11%16%9%2863%10/2429%$1.5931
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 Tops: Busted Buy, Busted Sale

Picture of a busted pattern pair.

Table 3 shows trading statistics for busted Eve & Eve Double Tops as the entry signal and various busted chart patterns as the exit signal. A stop loss order was used and priced a penny below the bottom of the Eve & Eve double top (after buying).

The associated figure shows the setup.

For example, buying a busted Eve & Eve double top and selling a busted broadening top made 46% from the winners, lost 15% on the losers for a net gain of 10%. Annualized, it was 5%. The net gain placed the performance of this setup at 36, where 1 is best.

Removing stops from the trades allowed them to make 47%. Only 53 trades were taken and 28% of them were winners. Expectancy was a gain of $4.70 per share, ranking 17th where 1 is best.

Trades with sample counts below 30 are not ranked.


Table 3: Statistics for Busted Buys and Sales
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom46%-15%-3%21%5/2020%
Broadening top58%-10%10%5%3647%15/3828%$4.7017
Broadening formation, right-angled and ascending54%-15%6%47%7/1630%
Broadening formation, right-angled and descending39%-8%3%13%5/1723%
Broadening wedge, ascending65%-11%0%36%1/614%
Broadening wedge, descending49%-13%7%22%5/1131%
Bump-and-run reversal bottom191%-9%47%53%7/1828%
Cup with handle37%-12%0%16%2/625%
Diamond bottom118%-9%39%65%6/1038%
Diamond top49%-11%3%54%7/2224%
Adam & Adam double bottom92%-9%10%6%3348%21/9119%$1.8930
Adam & Eve double bottom47%-10%-1%0%3830%10/5116%$1.9729
Eve & Adam double bottom112%-11%18%8%3168%12/4023%$4.3221
Eve & Eve double bottom95%-11%20%11%2657%12/3029%$4.5418
Falling wedge44%-10%11%7%3253%12/1840%$3.4523
Head-and-shoulders bottom167%-10%25%15%1272%19/7720%$0.8935
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders complex bottom36%-10%6%53%4/833%
Rectangle top102%-10%17%13%2039%9/2824%-$0.3138
Rising wedge46%-10%11%52%5/838%
Round bottom32%-8%8%44%2/340%
Rounding top33%-14%-6%10%2/1017%
Ascending scallop93%-9%36%18%783%17/2145%$5.7012
Descending scallop64%-9%21%36%5/742%
Scallop, inverted and ascending73%-10%8%6%3454%10/3423%$3.2924
Scallop, descending and inverted46%-10%3%30%4/1422%
Triangle, ascending46%-15%7%34%8/1436%
Triangle, descending65%-10%6%27%5/1921%
Triangle, symmetrical75%-9%13%46%7/1927%
Triple bottom112%-9%20%12%2251%29/8925%$13.953
Rectangle bottom87%-9%6%22%2/1115%
3 rising valleys126%-10%29%13%1774%22/5429%$23.071
Roof35%-10%13%29%3/350%
Roof, inverted48%-10%6%14%3/827%
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 Tops: 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 Eve & Eve double top. 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 two combinations of busted/non-busted trades and the resulting performance.

There's no consistent pattern to the inbound trend and performance. Non-busted buys do best if the short term applies, but busted patterns perform best after a medium-term inbound price trend.

Table 4: Short (S) Medium (M) or Long (L) Trend Start and Performance
 Sell Non-Busted PatternSell Busted Pattern
Buy busted patternS50% M35% L5%S21% M28% L4%

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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 selling busted or non-busted patterns when the breakout price was above (A) or below (B) the 50-day simple moving average (SMA).

The results say that buying a busted double top when the buy price is above the 50-day SMA gives the best performance.

Table 5: Above (A) Below (B) 50-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy busted patternA27% B7%A15% B2%

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.

At buy time, if the buy price is above the 200-day SMA and you later sell a non-busted pattern, the odds favor better performance. Selling a busted pattern does better if the buy price was below the 200-day SMA.

Table 6: Above (A) Below (B) 200-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy busted patternA27% B18%A14% B20%

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Selling First Bearish Chart Pattern

The prior discussion assumes you buy a busted Eve & Eve double top but 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 a busted Eve & Eve double top and sell the first non-busted chart pattern which comes along, you'd make 21% on average. Annualized, you'd make 18%. This compares to a 15% 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 best result comes from selling the first non-busted pattern which appears. Avoid selling busted patterns.

The bottom half of the table shows expectancy for the two combinations with selling non-busted patterns having the highest expectancy of profit.

Table 7: Selling the First Bearish Pattern (Annualized)
 Sell Non-Busted PatternSell Busted Pattern
Buy busted pattern21% (18% v 15%)1% (1% v 8%)
Expectancy (Below)
 Sell Non-Busted PatternSell Busted Pattern
Buy busted pattern$3.61$1.14

-- Thomas Bulkowski

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