Technical analysis. Adam and Eve
Double base “Adam and Eve”
The Adam & Eve reversal demonstrates the importance of the center peak in the formation of the Double Bottom. A very sharp and deep first bottom at high volume (Adam) forms a Double Bottom pattern. The market instrument then corrects upward towards the retracement level and then develops a longer and flatter second bottom (Eve) at relatively low volatility. The price action then contracts in a narrow range and the market instrument breaks out steadily upward.
When the Eve’s top transitions into a flat range, it represents an excellent breakout entry point. As with many similar sub-patterns, resistance often runs right along the top of the central retracement. This shows that the most important point to consider when considering a double bottom pattern is the relationship between this center point and the current price.
Less common is the Eve and Adam model. Price first forms support near its low with relatively little volume in the form of a rounded Eve curve. The market tries to pull back but fails at normal retracement levels. Fear engulfs the crowd and price moves occur at higher volatility. A sharp and strong decline ensues, which pushes the market instrument back to its low. An Adam reversal spike appears at high volume, often with an extremum exceeding the base of Eve. In a subsequent uptrend, the price can fly out like a champagne cork if the market attitude changes sharply back to positive.
Since a “double bottom” occurs during downtrends, the risk should be limited. Greed makes us believe that the bottom has been reached and we can easily be deceived. Even an impressive reversal will bring small profits if price fails to rally back from the bottom. When choosing stop-loss levels and exit points, breaking the previous low is a natural choice. When choosing entry points, make sure that the stop order at this level is acceptable to you. And don’t put it too far away. When the lows are broken, the price will quickly gain downward momentum in search of new support.
A successful entry at the base also requires good endurance. Even when all the technical conditions are met, the emotional attitude at these turning points will be sharply negative. However, the potential for short-term profit is nevertheless very significant. In addition to other players willing to speculate on good upside gains, high quick profits will attract new buyers, giving explosive impetus to moves from these points. Perhaps for this one reason alone, serious traders cannot ignore double bottom patterns.
U-turns at the base
Eve’s rounded base takes longer to form than Adam’s sharp spine. Watch for a decrease in volume as the market consolidates and prepares for a new uptrend. The Adam and Eve formations are not limited to bases. Look for them at the end of parabolic rallies.
The Adam and Eve formations rarely appear, but when they do they are very beneficial. The change in the emotions of the market crowd from sharply negative to extremely positive provokes rush buying, pushing the market instrument up from its bottom.
Double Top “Adam and Eve”
Price charts form many unique patterns at the top of the market. Some classics, such as the Inclined Triangle, can be recognized and used for trading without requiring much effort. But the emotional crowd also forms many less reliable patterns as greed slowly develops into unconscious fear. The best technical analysts sometimes get stumped when analyzing contradictory formations, while random patterns like the diamond burn up trading capital by swinging erratically back and forth.
Smart traders avoid these barren positions and only look for profits where their odds are much higher. They first identify the common features found in most tops of reversals: price is forming at least one lower top within a broad consolidation before breaking the main uptrend. This common double top pattern becomes the focus for their trade entry. From this clear pointer, they follow the price to the natural breakout point and then jump into the breakout.
The double top “Adam and Eve” is a mirror image of the double base “Adam and Eve”. As shown above, the double base “Adam and Eve” consists of a thorn in the first base followed by a rounded second base. Flip this pattern and you have a very predictable formation that allows you to trade effectively on a top reversal.
This simple Adam and Eve top provides traders with an excellent opportunity to sell quickly with high profits. Take a look at this classic example in the Quantum chart. Price fell short of the third peak before entering a significant bearish trend. Successful short positions in the Adam & Eve pattern could have been entered on the first breakout of a corrective low, regardless of the underlying trend. However, use tight stop orders to avoid the “turtle reversal”. It occurs when sharp short rallies suddenly occur just after the breakout stops below the breakout points.
Each uptrend generates a positive attitude that must be overcome by top patterns. The Adam and Eve tops provide an effective bar structure for this task. Adam’s strong reversal is alarming at first. The Eve’s slow dome then absorbs the remaining bullish momentum, while the dissipation of volatility should have resumed the rally. As the dome is formed, the price moves rapidly to lower levels without significant resistance.
Astute technical analysts will recognize the Descending Triangle and Adam & Eve patterns in more complex reversal patterns. The large vertex count contains some of the characteristics of these familiar patterns. The enthusiasm of the crowd must be overcome in order to go down. After repeated failed attempts at the price to reach new highs, the enthusiasm of the buyers eventually dries up. Then the market can finally drop from its own weight.
Double Top Breakout
Perennial peak of “Quantum” in 1997 was broken using the double top model “Adam and Eve“… Monitor volume and volatility indicators to gradually decline through the formation of a second rounded top. In most cases, the Eve top includes more price bars than the Adam top that preceded it.