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Written by and copyright © 2005-2010 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 is a term that describes how the top looks, in this case, Adam sports a narrow, pointed top, perhaps with a one-day upward spike. The following Eve top is more rounded looking and wider. If Eve
has 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 over their height. When trying to decide which is which, ask yourself if the two tops appear different or similar. With Adam & Eve, the two should look
different (the first narrow and the second wide).
The Adam & Eve double top is a poor performer in both bull and bear
markets. Since the rebound after price bottoms is large, it might pay to wait for that scenario
instead of shorting the downward breakout. For more information see pages 291 to 306 of the
book Encyclopedia of Chart Patterns, Second
Edition, and read the following...
Important Bull Market Results
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Overall performance rank (1 is best): 15 out of 21
Break even failure rate: 14%
Average decline: 18%
Pullback rate: 59%
Percentage meeting price target: 69%
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Identification Guidelines
| Characteristic | Discussion |
| Price trend | Upward leading to the pattern. |
| Shape | Two distinct tops that look different. Adam tops appear first and are narrow,
inverted V’s but Eve follows Adam and is more rounded looking and wider than Adam. |
| Valley | The valley drop between the tops should measure at least
10%, but allow exceptions. |
| Top price | The variation between price peaks is small, less than 3%.
The two tops should appear to peak near the same price. |
| Separation | The twin peaks are several weeks apart with most falling
in 2 to 7 week range. |
| Confirmation | The double top confirms as a true double top once price
closes below the valley between the two peaks. |
| Volume | Usually higher on formation of the left peak than the right. |
Trading Tips
| Trading Tactic | Explanation |  The Measure Rule |
| Measure rule | Compute the height from the highest peak (point B in the
figure to the right) to the lowest valley (A) between the two peaks and then
multiply it by the above “percentage meeting price target.”
Subtract the result from the breakout price (A) to get the target (C). Also, see
the double top study. for a new price prediction method. |
| Stop | Place a stop above the Eve peak. The wide and rounded top
makes for a good resistance area. The link to the left discusses stop placement. |
| Price reversal | Price must have something to reverse, so if the rise leading
to the double top is small, expect a small decline. |
| Confirmation | Wait for confirmation – price to close below the
valley floor. If you don’t wait, there’s a 65% chance that price will continue higher without confirming the double
top. |
| Trend end | If a double top appears after a long-term DECLINE, confirmation
of the top may mean that the end of the decline is near (10% to 20% below and a month away). |
| Trends | A short-term rise leading to the double top results in
the best post breakout performance. |
| Yearly high | For best performance, double tops with breakouts in the
middle third of the yearly price range perform best, but the performance difference with the other ranges is small. |
| Pullbacks | Pullbacks hurt post breakout performance. The link to the
left defines a pullback while this
link discusses performance. |
Example
The above figure shows an example of an Adam & Eve double top chart pattern. The Adam peak in this example is
a one day price spike whereas the Eve peak is wider and flatter. The price squiggles confirm as a true Adam & Eve
double top when price closes below the confirmation price, shown here as a blue line.
Other Examples
-- Thomas Bulkowski
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