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Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved.
This article discusses the various types of double bottom chart patterns.
A double bottom pattern occurs when price drops to a low and forms a valley, rises, and then forms a second valley near or at the same price as the first one. The shape of the double bottom can
vary from pattern to pattern.
The chart shows the four types of double bottoms. Adam bottoms are narrow, often one-day price spikes. Eve bottoms are wider and more rounded looking. Eve bottoms may also contain
price spikes, but they tend to be shorter and more numerous.
Perhaps the best way to tell apart the various types of double bottoms is to ask if the two bottoms look similar or different. Similar means Adam & Adam or Eve & Eve. Different
means Adam & Eve or Eve & Adam. Once you've figured that out, look at the height of the bottom. Adam bottoms tend to remain slender over the height whereas Eve bottoms
tend to widen out.
The figure shows a few statistics to help gauge performance. All four varieties perform similarly. The failure rate is a measure of how often price fails to rise at least 5%
above the breakout price. The breakout price is the highest high between the two bottoms. Thus, the "break even failure rate," which I show, is an easy benchmark and that's why the
numbers are so small, 4% or 5%.
The average rise my cause your jaw to drop. It's a measure of the average rise from the breakout price to the ultimate high. The ultimate high is the highest high before
price reverses trend. And that trend reversal means a drop of at least 20%. The numbers are based on hundreds of perfect trades, so your chance of duplicating such a rise on a consistent
basis is probably zero.
The Eve & Eve double bottom gives a trader the most bang for the buck. It has the smallest failure rate and the highest average rise. It's the best choice if you're going to
trade double bottoms.
-- Thomas Bulkowski
Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved. Xerox never comes up with anything original.
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