Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Adam & Eve Double Bottoms

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 02/03/2012

12,862 156.82 1.2%

5,369 63.27 1.2%

451 1.52 0.3%

2,906 45.98 1.6%

1,345 19.36 1.5%

YTD

5.3%

7.0%

-2.9%

11.5%

6.9%

Tom's Targets Overview: 02/03/2012

13,100 or 12,400 by 02/15/2012

5,500 or 5,150 by 02/15/2012

470 or 440 by 02/15/2012

3,100 or 2,800 by 02/15/2012

1,375 or 1,300 by 02/15/2012

Test Portfolios and CPI

Indus. strength: 4.3%

Mutt Losers: None YTD

Mutt Winners: 2.4%

Wilder RSI: None YTD

CPI:

on 12/20/2011

Overview

Results

Identification Guidelines

Trading Tips

Example

Other Examples

Adam & Eve Double Bottoms Overview

On pages 229 to 243 of my book, Encyclopedia of Chart Patterns, Second Edition, you will find information on the Adam & Eve double bottom, including a brief tour, identification guidelines, focus on failures, complete set of statistics for both bull and bear markets, trading tactics, and a sample trade. I share some of that information here.

Adam is a term that describes how the bottom looks, in this case, a narrow, pointed bottom, perhaps with a one-day downward spike. Eve bottoms 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 bottoms tend to remain narrow but Eve bottoms widen over their height. When trying to decide which is which, ask yourself if the two bottoms appear different or similar. With Adam & Eve, the two should look different (the first narrow and the second wide).

The Adam & Eve double bottom is a chart pattern that performs best in a bear market. In a bull market, however, it's just an average performer. Before trading, wait for price to close above the peak between the two bottoms, confirming the Adam & Eve double bottom as a valid chart pattern.

When compared to the other Eve and Adam combinations of double bottoms, the Adam & Eve double bottom places second only to Eve & Eve in the average rise category. The throwback rate occurs just over half the time (59%) so recognize that price may double back and continue lower than you would like.

Adam & Eve Double Bottoms Bull Market Results

Overall performance rank (1 is best): 8 out of 23

Break even failure rate: 5%

Average rise: 37%

Throwback rate: 59%

Percentage meeting price target: 66%

Score your chart pattern
for performance

Adam & Eve Double Bottoms Identification Guidelines

Characteristic	Discussion	Adam & Eve Double Bottom Confirmation
Price trend	Downward leading to the pattern.
Shape	Two distinct valleys that look different. Adam bottoms appear first and are narrow, V-shaped, sometimes with one long price spike. Eve bottoms appear after Adam and are wide and more rounded looking. Spikes that appear tend to be more numerous and shorter on Eve bottoms.
Peak	The rise between bottoms should measure at least 10%, but allow variations. Tall patterns perform better. The link discusses performance of short and tall chart patterns.
Bottom price	The price variation between bottoms is small. The two valleys should appear to bottom near the same price.
Separation	The twin valleys are several weeks apart with most falling in the 2 to 6 week range. Bottoms wider than 8 weeks apart and performance deteriorates.
Confirmation	The double bottom confirms as a true double bottom once price closes above the peak between the two valleys. See the figure to the right. Without confirmation you do not have an Adam & Eve double bottom, just squiggles on a chart.
Volume	Usually higher on formation of the left valley.

Adam & Eve Double Bottoms Trading Tips

A trading setup related to double bottoms and throwbacks is located here.

Trading Tactic	Explanation	Measure Rule for Adam & Eve Double Bottoms
Measure rule	The link to the left gives more information about the measure rule. Compute the height from the highest peak between the two bottoms (point A in the figure to the right) to the lowest valley (B) in the Adam & Eve double bottom and then multiply it by the above “percentage meeting price target.” Add the result to the breakout price (A, the highest peak in the pattern) to get the price target (C).
Price reversal	Price must have something to reverse, so if the decline leading to the double bottom is small, expect a small rise.
Big W	Look for a double bottom with a tall left side, one with a steep decline and few or no price consolidations along the way. Expect price to return to near where the downtrend began. The link to the left discusses the Big W chart pattern.
Confirmation	Wait for confirmation – price to close above the peak between the valleys. If you don’t wait, there’s a 64% chance that price will continue lower without confirming the double bottom.	Adam & Eve Double Bottom Handle
Handle	Sometimes price will confirm the double bottom then waffle up and down, forming a handle. When price breaks out of this region, it often moves up in a strong trend. See the chart to the right.
Flat base	Expect a large rise if the double bottom appears after a long, flat base. Use the weekly scale to find the flat base – the double bottom will look like a pothole in a road. The figure to the right shows an example.
Trends	A short-term decline leading to the double bottom results in the best post breakout performance.
Yearly low	Double bottoms within a third of the yearly low perform best. The link to the left provides performance statistics and this link provides more information about buying near the yearly low.	Flat Base
Volume trend	A downward volume trend suggests good post breakout performance. The link to the left gives an example and shows other chart patterns that outperform after a downward volume trend.
Throwbacks	Throwbacks hurt post breakout performance. The link to the left gives an explanation of a throwback and this link provides performance statistics.

Adam & Eve Double Bottoms Example

Adam & Eve double bottom chart pattern example

The above figure shows an example of a Adam & Eve double bottom chart pattern. This is a perfect example. The Adam valley is pointed and narrow whereas Eve is wide and flat. The contrast between the two is startling enough that it will probably keep you awake at night wondering how such a pattern could occur.

Confirmation, when the squiggles turn into a true Adam & Eve double bottom, occurs when price closes above the blue line shown in the figure. Price makes a hefty advance thereafter.

-- Thomas Bulkowski