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  Up arrow1,000 or 925 by 12/15/2022
  Up arrow12,000 or 10,600 by 12/15/2022
  Up arrow4,250 or 3,850 by 12/15/2022
CPI (updated daily): Arrows on 12/5/22
As of 12/07/2022
  Indus: 33,598 +1.58 +0.0%  
  Trans: 13,768 -130.21 -0.9%  
  Utils: 973 -6.18 -0.6%  
  Nasdaq: 10,959 -56.34 -0.5%  
  S&P 500: 3,934 -7.34 -0.2%  
YTD
-7.5%  
-16.4%  
-0.8%  
-30.0%  
-17.5%  
  Targets    Overview: 12/01/2022  
  Up arrow35,500 or 32,800 by 12/15/2022
  Down arrow13,400 or 14,500 by 12/15/2022
  Up arrow1,000 or 925 by 12/15/2022
  Up arrow12,000 or 10,600 by 12/15/2022
  Up arrow4,250 or 3,850 by 12/15/2022
CPI (updated daily): Arrows on 12/5/22

Bulkowski on Pattern Pairs: Adam & Eve Double Tops

Initial release: 10/14/2021. Fixed trend start numbers: 11/12/21.

The idea behind pattern pairs is to pick a chart pattern type (like busted Adam & Eve double tops) to buy and another to sell (like head-and-shoulder tops). You buy the upward breakout from the double top, hold for a few years, and sell when a head-and-shoulders 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 Adam & 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 Adam & Eve double top (price breaks out downward, drops no more than 10%, reverses, and closes above the top of the Adam & Eve double top). Buy as price rises above the top of the Adam & Eve double top.

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.

The best pattern to use for the sell signal is a Eve & Adam double top

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

Buy a busted Adam & 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.

For example, the pattern pair with the highest trade expectancy is to buy a busted Adam & Eve double top (a downward breakout which busts) and sell a busted Eve & Adam double bottom (upward breakout which busts). If you traded 100 shares, the average expected gain would be $1,902 or $19.02 per share.

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

To improve performance, try these tips.

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Trading Adam & 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 on the way to the one I did catalog. So buying a busted Adam & Eve double top and selling at a head-and-shoulders top I cataloged would be different than choosing to sell a different head-and-shoulders 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 chart patterns in the analysis, but some only applied if they were busted.

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Trading Adam & Eve Double Tops: Stops

I used a stop loss order set a penny below the bottom of the Adam & Eve double top. Price on the way down may have gapped below the stop price (for the sale price, 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 bought busted Adam & Eve double tops and sold on various non-busted patterns (broadening bottoms, Adam & Eve double tops, head-and-shoulders tops, and so on), I made an average of 29% ("Stop Loss Only" column) after having a stop loss order in place a penny below the bottom of the chart pattern. The average loss was 10% (shown in parenthesis). Replacing the stop loss with a 10% trailing stop cut the profit to 4% but also trimmed the average loss to 6%. Using a 25% trailing stop allowed me to keep more money, 17%, but the average loss also climbed to 15%. If I didn't use any type of stop, the profit averaged 70% but the average loss was huge: 28%.

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%)  8% (-9%)  13% (-11%)  17% (-15%)  29% (-10%)  70% (-28%) 
Busted buys, busted sales 3% (-5%)  8% (-8%)  13% (-11%)  16% (-15%)  23% (-10%)  60% (-24%) 

Trading Adam & Eve Double Tops: Busted Patterns

Selling a busted chart pattern results in worse performance than selling non-busted patterns (at least for busted Adam & Eve double tops as the buy signal).

In 22 contests (22 different chart pattern types), I compared busted and non-busted sell signals and gauged performance. I found that selling a busted chart pattern gave better performance 45% of the time (meaning non-busted patterns worked better for the sale 55% of the time).

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Trading Adam & 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 bearish chart pattern (downward breakout from a Adam & Eve double top in a bull market), buy. Sell after a downward breakout from the target chart pattern.

Table 2 shows the performance of busted Adam & Eve double tops for the entry and sales after downward breakouts from various bearish chart patterns. I used a stop loss order priced a penny below the bottom of the Adam & Eve double top (after buying).

A busted Adam & Eve double top has a downward breakout but price drops no more than 10% before reversing and moving above the top of the Adam & Eve double top. Buy when price moves at least a penny above the top of the busted Adam & Eve double top. Sell after price drops at least a penny below the target chart pattern.

For example, buying a Adam & Eve double top with a busted downward breakout 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 126%. Losses average 11%, for a net of 23%. Because trades are often years long, annualized the net becomes 21%. Only 57 trades occurred with a win/loss ratio of 25%. This scenario ranks the net gain as 7th among tables 2 and 3. If you traded this as a buy-and-hold position, meaning no stops were used, the net gain climbed to 48%. The expectancy is $2.18, placing it 21st where 1 is best.

Trades with sample counts below 30 are not ranked.

Table 2: Statistics for Busted Buys, Normal Sales
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom126%-11%23%21%748%14/4325%$2.1821
Broadening top142%-10%40%23%391%32/6433%$7.256
Broadening formation, right-angled and ascending150%-11%32%18%1356%12/3327%$0.9527
Broadening formation, right-angled and descending83%-11%14%9%2740%11/3126%$2.6020
Broadening wedge, ascending186%-12%49%80%7/1630%
Broadening wedge, descending285%-9%53%78%4/1521%
Bump-and-run reversal top130%-11%28%21%754%21/5627%$2.0422
Diamond bottom34%-12%-5%28%2/1115%
Diamond top164%-11%39%21%781%12/3029%$3.5713
Adam & Adam double top197%-8%49%24%290%77/20228%$9.753
Adam & Eve double top102%-9%18%13%2261%29/9124%$3.8712
Eve & Adam double top202%-9%60%25%193%46/9433%$13.182
Eve & Eve double top166%-9%27%20%1082%25/9421%$2.7518
Falling wedge3%-12%-11%11%2/248%
Head-and-shoulders top135%-10%29%18%1366%98/27127%$5.287
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders, complex top120%-11%29%22%653%18/4131%$2.9715
Rectangle top134%-12%30%16%1855%15/3729%$2.7518
Rising wedge129%-11%40%23%397%32/5537%$5.209
Rounding top143%-10%19%17%1698%11/4719%$1.4526
Ascending scallop85%-14%9%54%4/1324%
Descending scallop65%-11%6%7%2961%27/9323%$0.7829
Scallop, inverted and ascending79%-10%24%27%5/838%
Scallop, descending and inverted127%-12%20%18%1375%15/5123%$1.5325
Triangle, ascending94%-11%21%13%2289%13/3030%$5.218
Triangle, descending108%-12%15%12%2441%12/4322%-$0.5232
Triangle, symmetrical113%-12%14%11%2659%35/13521%$0.8928
Triple top138%-9%26%15%1972%69/21824%$3.0714
Rectangle bottom99%-12%12%8%2812%8/2822%-$0.3631
3 falling peaks153%-9%36%23%370%66/17428%$7.335
Roof3%-8%-6%52%2/1017%
Roof, inverted143%-10%31%123%6/1627%
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Adam & Eve Double Tops: Busted Buy, Busted Sale

Picture of a busted pattern pair.

Table 3 shows busted Adam & Eve double tops as the entry signal and various busted chart patterns as the exit signal. Keep in mind that some trades were few in number. I used a stop loss order priced a penny below the bottom of the Adam & Eve double top (after buying).

The associated figure shows the setup.

For example, buying a busted Adam & Eve double top and selling a busted broadening bottom made 34% from the winners, lost 10% on the losers for a net gain of 10%. Annualized, it was 5% (not shown). Because fewer than 30 samples were used, I did not rank this pattern. Removing stops from the trades allowed them to make 27%, far above the 10% net when using a stop loss order. Only 15 trades were taken and 47% of them were winners. Expectancy was $2.75 per trade (not shown), per share, but it's not ranked because of few samples.

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 bottom34%-10%10%27%7/847%
Broadening top126%-10%34%17%1669%14/2933%$4.5911
Broadening formation, right-angled and ascending144%-10%15%43%3/1517%
Broadening formation, right-angled and descending86%-16%14%27%5/1229%
Broadening wedge, ascending69%-19%1%50%2/722%
Broadening wedge, descending222%-15%28%73%2/918%
Bump-and-run reversal bottom9%-14%-10%21%1/420%
Cup with handleNone-10%-10%14%0/50%
Diamond bottom477%-9%54%84%3/2013%
Diamond top133%-7%26%69%5/1624%
Adam & Adam double bottom170%-8%34%19%1269%20/6424%$2.8616
Adam & Eve double bottom47%-10%1%1%3246%12/4720%$1.7123
Eve & Adam double bottom199%-7%59%20%1081%14/3032%$19.021
Eve & Eve double bottom287%-9%54%104%6/2221%
Falling wedge202%-10%61%90%6/1233%
Head-and-shoulders bottom79%-9%11%6%3042%21/6923%$5.1310
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders complex bottomNone-11%-11%-5%0/100%
Rectangle top24%-12%-1%45%7/1630%
Rising wedge241%-10%62%107%4/1029%
Round bottom77%-7%21%23%1/233%
Rounding top74%-4%29%20%3/443%
Ascending scallop73%-13%37%65%11/858%
Descending scallop96%-8%27%42%3/633%
Scallop, inverted and ascending69%-12%3%3%3166%6/2619%$0.6830
Scallop, descending and inverted270%-6%132%127%3/350%
Triangle, ascending74%-14%10%17%7/1927%
Triangle, descending65%-10%6%27%5/1921%
Triangle, symmetrical96%-10%21%14%2070%32/7530%$2.8616
Triple bottom99%-8%19%14%2048%21/6126%$1.5424
Rectangle bottom77%-12%28%69%4/544%
3 rising valleys84%-9%17%12%2483%14/3529%$8.224
Roof114%-6%18%94%1/420%
Roof, invertedNone-11%-11%30%0/100%
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Adam & 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 Adam & 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 combinations of busted/non-busted sales and the resulting performance.

Buying busted patterns with a short-term (up to 3 months) duration from the trend start to the pattern's start resulted in significantly better performance than longer terms for selling both busted and non-busted patterns. Notice that sales of non-busted patterns performed better over each duration category.

Table 4: Short (S) Medium (M) or Long (L) Trend Start and Performance
 Sell Non-Busted PatternSell Busted Pattern
Buy busted patternS46% M1% L25%S41% M-2% L19%

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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 that sales of non-busted patterns outperformed busted ones. For best results, buy the busted Adam & Eve double top when the breakout price is above the 50-day simple moving average. Buying it when the breakout price is below the SMA results in a loss, but trades were few (as few as 27).

Table 5: Above (A) Below (B) 50-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy busted patternA30% B-2%A24% B-5%

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.

Buying a pattern with the breakout price above the 200-day SMA worked best for both busted and non-busted pattern sales.

Table 6: Above (A) Below (B) 200-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy busted patternA31% B22%A24% B21%

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Selling First Bearish Chart Pattern

The prior discussion assumes you buy a busted Adam & 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 Adam & Eve double top and sell the first non-busted chart pattern which comes along, you'd make 6% on average. Annualized, you'd make 20%. This compares to a 19% 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 differences are a yawn.

The best results come from selling the first non-busted pattern which appears.

The lower half of the table shows the expectancy for the various combinations of busted and non-busted sales. The best expectancy comes from selling non-busted patterns. Expect to make $2.07 per trade, per share. The worst performance comes from selling busted patterns. Expect to lose 96 cents a share per trade.

Table 7: Selling the First Bearish Pattern (Annualized)
 Sell Non-Busted PatternSell Busted Pattern
Buy busted pattern6% (20% v 19%)1% (3% v 14%)
Expectancy (Below)
 Sell Non-Busted PatternSell Busted Pattern
Buy busted pattern$2.07$-0.96

-- Thomas Bulkowski

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See Also

 

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