Stocks & Commodities V. 22:11 (44-48): Rotten Apples? Spotting Adam And Eve Double Tops by Thomas N. Bulkowski
These variations on the classic double top have performance differences. You can profit from them. Here’s how.
Recognizing a budding double top is the first step to averting disaster. Trading them properly can save you from taking a loss — it may even make you a tidy sum. Ignoring them could hurt your wallet. What is a double top, and what do Adam and Eve have to do with it? In early 2003, the market started trending upward. By January 2004, stocks began to get pricey, and I was expecting double tops to appear like daffodils in the spring.
A double top looks just like it sounds: a twin price peak with highs near the same price level and peaks separated by several weeks (some recommend they be at least a month apart). It forms at the end of an upward price trend, although the trend need not be very long. The dip between the two peaks is usually 10% to 20%, sometimes much more. I have found that the deeper the valley, the better the pattern’s performance.
Adam and Eve refer to the shape of the tops. I am sure you can guess what they look like, but I will spell it out anyway. Adam tops are narrow and pointed, perhaps with a one-day spike. Eve tops are more rounded, wider, and sometimes have many peaks near the same price.