Classic Patterns: a Secret of Evolution or Adam and Eve?

Classic Patterns: a Secret of Evolution or Adam and Eve?

Classical patterns are one of the most essential areas of market analysis.

I will explain all I know about two of the most popular classic patterns – and my favorites – the Double Top and Double Bottom.

Join me as I teach you my strategy and how you can make money with these patterns.

Pejman Zwin

Content

When the birds sing, we know that morning has come.

There is a sign for everything if you can see it.

Many analysts in this market have been looking for a market solution and the key to success for years.

Each has sought to catch fish from this ocean with a method and a strategy.

But many traders cannot see the signs of the market.

In this article, I want to teach you how to look at the market in a better way.

I remember when these patterns were all that I had to analyze the markets.

Of course, despite other new methods and indicators, many traders are loyal to these patterns.

Reversal patterns are one of the most important chart patterns.

I want to tell you all my experiences with these patterns.

By learning and practicing them, I could make about 22% profit from the market in one trading period, and maybe you can even make more than 30% profit from them.

This article teaches you how to trade on Double Top and Double Bottom.

These two patterns have many details, but I will tell you the easiest way to learn them in this article.

You can even trade on triple top and triple bottom.

I will tell you how.

Do you have any questions? Stay with me to find the answers.

Double Top Pattern

Double Top Pattern

The Double Top pattern is a bearish reversal pattern.

It occurs at the end of upward trends.

In the standard mode, this pattern forms with two tops of the same size and shape.

This pattern is not suitable for trading in stock markets, and we can only use this pattern in two-sided markets like forex and cryptocurrency.

Since we can’t open a short position In the stock markets, we use the Double Top pattern as an exit signal.

In an uptrend, the price breaks through resistance levels one by one, as it rises.

When the price reaches a vital resistance level stronger than the last support level, that resistance pushes the price down and it breaks through the support level.

Buyers know that the uptrend has ended, and the price will enter a bearish channel.

The shape of this pattern is like the letter ‘M,’ which has caused many traders to name it the ‘M pattern,’ but I call it ‘Double Top’ or ‘Twin Top.’

Twin Top

Of course, there are other names, such as Double Peak and Double Head.

In two-sided markets, after the falling price engulfs the neckline, the potency of sellers increases, and more sellers enter the market.

Trading volume increases after the neckline is crossed downward, so the price gradient steepens in this area.

As a result, the price momentum of the last leg is greater than in previous movements.

I also enter as a seller; you can too.

I pay a lot of attention to trading volume in my trading because it gives me effective signals about the market.

Most market makers (the big boys) have left the market at the first top.

Therefore, the trading volume in the second top is less than in the first top.

As a result, the oscillators that analyze the market volume show divergence at this point.

If you don’t know what ‘oscillator’ and ‘divergence’ are, I will teach you in future articles.

Neckline: The lower support line beneath the two tops is called the neckline.

Called the neckline

The peaks may not be at the same price but we ignore any slight differences between them and consider them to be at the same level.

The distance from the neckline to the top should be 20-25% of the size of the upward trend.

If that distance is any smaller or bigger, then this is not a reversal pattern.

I should see this pattern in at least a 15-minute time frame; patterns that form in a narrower time frame are not valid for me.

Well, we have come to my favorite topic.

Learn this well because I have made most of my profits from this pattern based on this part.

Last kiss: when the price comes back to touch the neckline for the last time, we call this touch the last kiss.

Like a lover who kisses her lover’s neck for the last time and walks away.

Last kiss

I often enter the market in this pullback because I have more confidence in the success of the trade.

You ask why?

Because I get a higher risk-to-reward ratio at this entry point and make more profit.

But this method also has problems.

Sometimes the price doesn’t pull back to the neckline, and I can’t enter the position and make a profit from this pattern.

I have particular strategies to benefit from this pattern, however, and I want to tell you about them.

This method is the most efficient and profitable among the classical patterns.

You can choose my way, or you can develop your own strategy to benefit from these patterns.

Trade on Double Top pattern

Trade on Double Top pattern

Usually, when the neckline is broken, traders open a short position, and their entry point is slightly under the neckline.

The first target is a fall in price equal to the distance from the neckline to the tops; Usually, the price continues to fall further than this target distance.

For the second target, they aim to take profits when the price falls by double that distance or to the next level of price support.

They put their stop-loss at or just above the resistance level represented by the two tops.

So they might get at least a 1:1 risk-to-reward ratio in this position.

An average trade with a moderate risk, neither too much nor too little.

The second method is the pullback to the neckline, and when the price returns to the neckline, traders enter a short position.

Stop-loss and profit-taking levels are the same as in the previous method.

But I want to tell you a smarter strategy to make more profit and increase your win rate.

I made some of my best trades on the EUR/USD chart, on 11 August 2022 and in the 2- hour time frame.

I want to explain how to trade in this area.

Trade in this area

I pay a lot of attention to candlestick patterns.

One of the essential points about this position is when the neckline is broken.

The price has to continue its trend.

Well, I use continuation candlestick patterns to confirm the price trend.

One of the candlestick continuation patterns that I like is the Marubozu candlestick pattern.

I will enter the position if I see a bearish Marubozu pattern in this area.

I have taught you this pattern in the candlestick patterns section.

We have an upward trend; the price reached the resistance zone at 1.0370 USD.

After returning from this area, the price hit this area again and made two peaks at roughly the same level.

The price comes back from the resistance zone to the neckline and breaks the neckline with a bearish Marubozu candle.

This situation assures me that the price is going to fall more.

Of course, the Marubozu candle should be closed under the neckline, and the body of this candle should come below it.

When this candle was confirmed, I entered my first position, slightly below the lowest price of this candle at 1.02644 USD.

When the price fell to a level equal to the distance from the Double Top to the neckline (the ‘X line’) I took my profits.

I had placed my stop-loss at 1.02999USD; just above the highest price of the Marubozu candle that broke the neckline.

For a higher risk-reward ratio.

If you prefer less risk in life, you could set your stop-loss above the two tops.

This is your choice.

For the second position, I suggest waiting for the pullback to the neckline or the last kiss.

Of course, I use candlestick patterns in this case too.

When the price returned to the neckline, I saw a reversal candlestick pattern, so I entered the position at 1.02535 USD.

I have already taught you how to enter positions based on candlestick patterns.

Of course, you cannot see a specific candlestick pattern in this time frame.

In this case, we have to go to lower time frames to see a reversal candlestick pattern.

Again, I placed a second stop-loss a little higher than the Marubozu candle.

Third position: when the price passed the last bottom, I entered the third position at 1.02354 USD.

The take-profit level with this position was again equal to the distance between the tops and the neckline.

And my stop-loss was upon the Marubozu candle, but you can place it just above the Double Top s.

It depends on you.

I had two targets in these three positions to make a profit.

The first target was the size of the distance between the tops and the neckline and the second target was twice that distance, as shown on the above chart.

Using the explanations I gave, and according to your trading strategy and capital management, you can choose any of these trading positions or create one of your own.

Failed Double Top

If you want the truth, this pattern is not always profitable and sometimes fails.

Of course, all patterns are like this and the market is never ideal and does not work as you expect 100% of the time.

But see how I make a profit from a failed pattern.

The Double Top pattern is a reversal pattern.

When the price goes above the top, though, the pattern has failed and is not suitable for trading.

After this failure, a solid and robust upward trend begins, one which may give us a ‘buy’ signal.

Failed Double Top

When the price passes the Double Top and goes up, a neckline is formed at the top, the line that connects the two tops on the above chart.

When the price returns to this upper neckline, I enter the position.

I put my stop-loss below the last bottom and my take-profit level is when the price increase mirrors the distance from the upper neckline to the last bottom (see the X lines).

Or even twice as much.

Usually, after the failure of these reversal patterns, the upward trend continues with more strength, and I make profits faster.

Further reading
Double Bottom Pattern

Double Bottom Pattern

Double Bottom Pattern

As I explained in the previous article, reversal patterns are in the tops and bottoms.

The Double Bottom pattern is a bullish reversal pattern that forms at the end of a downward trend and causes the market to change its movement to a bullish one.

We can use the twin-bottom pattern in one-way markets such as stock markets.

So it is more attractive to stock market traders because they can open long positions based on this pattern.

Do you want to know the philosophy behind the formation of this pattern and the reason why it works?

Stay with me so I can tell you the exciting details of this pattern.

After a period of sellers dominating the market, the price reaches a critical support area that does not allow it to move lower.

Buyers enter at this point and wait to see if the price will break through the last resistance level.

Should buyers force the price beyond that last peak, setting a higher top, they will buy with more confidence, starting a new uptrend.

This is the trend we have been waiting for. We have to be very careful because there is hidden treasure and I will tell you how to find it.

In the Double Bottom pattern, We hope that when the price breaks the neckline, it will continue its upward trend at least for a distance equal to that from the neckline to the bottoms.

This pattern forms in different time frames and can be an excellent position for stock market traders with daily and long-term trades.

In two-sided markets, after engulfing the neckline, the potency of buyers increases and more buyers enter the market.

Trading volume increases after breaking the neckline, so the price gradient steepens.

As a result, the price momentum of the last leg is higher than in previous movements.

Most market makers have left the market at the first bottom.

Therefore, the trading volume in the second bottom is much less than in the first one.

As a result, the oscillators that analyze market volume show divergence at this point.

As I said, I will discuss the topic of divergence in the near future.

Divergence in the near future

The Double Bottom pattern is known by other names, such as the ‘W pattern.’

The size of this pattern is also important, especially the size of the valleys and the distance between the neckline and the bottoms, which should be 20- 25% of the total length of the last downward trend.

Since I have been in the stock market more than in forex and cryptocurrency, this pattern is more familiar to me, and I have used it more than the previous one.

When I see that the price cannot make a new bottom and goes up to break the neckline, I follow the market more than ever, hoping to get an entry point to enter a long position and make a profit from the market.

Trade on Double Bottom pattern

After the price breaks the neckline, you can enter into a long position, but don’t rush.

You can also get confirmation from candlestick patterns.

If the neckline is crossed with a long candle or bullish Marubozu candle it is more valid and we can enter the market more confidently.

If the neckline is broken with doji and short candles, we have to wait for more convincing confirmation.

Because the cross may be a fake break and the price could fall more.

Other traders have a simple strategy: they enter their position after the neckline is broken, placing their stop-loss below the bottoms.

For the take-profit level, they look for the same distance as that between the neckline and the bottoms (see the X lines on the following chart).

Divergence in the near future

But follow my method to earn more profit and enter your position more confidently.

Pay attention to the positions I took on the BTC/USDT chart on 29 September 2021 and in a 2-hour time frame.

As with the previous pattern, I have my own strategy that I will tell you about.

When the price broke the neckline with a bullish Marubozu candle, I entered the first position at 43264.88 USDT.

But how?

To confirm this candlestick continuation pattern, I had to wait for the candle to close above the neckline.

When the candle closed, I entered a position slightly above the highest price of this candle and set my stop-loss below the lowest price of the Marubozu candle.

The take-profit level was at the same distance as that between the neckline and the bottoms.

For the second position, I wanted to enter at the last kiss.

When the price pulled back to the neckline, I entered the second position at 43374.19 USDT using a candlestick reversal pattern.

I placed the stop-loss below the Marabouzo candle to have a higher risk-to-reward ratio.

You can place your stop-loss below the bottoms; As you wish.

When the price passed the last top after the break of the neckline, I entered a position for the third time at 43920.74 USDT, and like the previous trades, my profit limit was equal to the distance from the neckline to the bottoms.

And I set my stop-loss as in the earlier positions.

This third position was open till the price reached the second target at 46207.82 USDT.

But I closed the two previous positions at the first target of 44416.83 USDT.

Failed Double Bottom Pattern

When the price falls below two bottoms, the pattern fails, and it is better not to rely on it.

But like the previous pattern, I also earn money with this one.

When the price passes the bottoms and goes down, a neckline forms under the pattern, the line that connects the two bottoms.

When the price returns to the neckline, I’ll enter the market.

I put my stop-loss limit above the last top, and my profit limit equals the distance from the bottom neckline to the last top.

Usually, after the failure of these reversal patterns, the trend continues with more strength, and I make my profit faster.

Make profit faster

Further reading
Thomas Bulkowski

Thomas Bulkowski

According to research by Thomas Bulkowski and contrary to popular belief, we should set our profit limit to less than the distance between the neckline and the tops or bottoms.

He says that with this method, the win rate will be better, and the profit from the patterns in this area will be higher.

Based on computer analysis of the numbers obtained, for the Double Top pattern, 72% of the size of the neckline to the top should be considered as a profit-target distance, and for the Double Bottom pattern, he advises 66%.

Double Bottom pattern

double-bottom

You might ask why the number for the DoubleTop pattern is higher.

Maybe it’s because people act more hastily and sell more when the price is falling.

Do you know why I told you that you should set your stop-loss limit above the tops in Double Top patterns?

Well, I want to tell you why: sometimes the price makes three tops instead of two tops.

In these cases, if we have entered into the position using the Double Top, we won’t lose money if the price makes the triple top because the price will return near the top.

But you should put your stop-loss above the top in this case.

I want to teach you this new pattern and tell you how to trade it.

Further reading
Triple Top Pattern

Triple Top Pattern

Triple Top Pattern

A bearish reversal pattern forms at the end of the uptrends.

This pattern is similar to Double Top; the only difference is an additional top.

Usually, the price enters a range channel in this situation and hits the upper line of the channel three times.

If the price makes a Triple Top pattern and breaks the lower neckline, it will give us a reversal signal that we can trade on.

The validity of this pattern is the same as the Double Top pattern.

However, some traders consider this pattern more valid because the price now tests the resistance level three times.

This signifies strong resistance, with sellers stopping the price from penetrating this level.

The primary market makers have left the market at the first top, and the market liquidity decreases after each top.

In this case, the oscillators show divergence and a signal that the market is reversing.

Trade on Triple Top pattern

In this pattern, we have three tops at the same price.

The lower support area which connects the bottoms is the neckline.

Whenever the neckline is broken, we open a short position.

Trade on Triple Top pattern

Like the previous patterns, we must place the stop-loss above the tops.

Of course, we can use my strategy in this pattern too.

Pay close attention to this triple top in 2002 that formed on the USD/JPY chart in the daily time frame.

You can see that after breaking the neckline, the price went down with a lot of momentum and did not pull back to the neckline.

We would not have profited in this position if we had waited for the last kiss to the neckline.

But according to the strategy that I introduced, when a bearish Marubozu candle crosses the neckline, I entered a short position a little bit below the lowest price of this bearish Marubozu candle at 130.428 JPY and placed the stop-loss above the highest price of this candle at 132.651 JPY.

As with the Double Top pattern, the take-profit level was set at the same distance as that separating the neckline and the tops, at 128.592 JPY.

In this pattern, we don’t have the pullback to the neckline, so we couldn’t open two more positions and only had one short position.

Pullback to the neckline

Further reading
Triple Bottom Pattern

Triple Bottom Pattern

A bullish reversal pattern forms at the end of a downtrend.

The validity of this pattern and the Double Bottom pattern is the same, and we can open a long position when we see this pattern.

This pattern is the same as the Double Bottom pattern; the only difference is the extra bottom.

Usually, the price enters the channel with no momentum in this situation and hits the lower line of the channel three or more times, forming a range channel.

If the price makes a Triple Bottom pattern and breaks the upper neckline, it will give us a reversal signal that we can trade.

Every time the price makes a bottom, the market volume decreases and the oscillators also show divergence in this state.

A signal that the rhythm of the market is changing.

Rhythm of the market

You should enter a position at the neckline break; as the price rises, your target price is equal to the distance from the neckline to the bottoms (see X lines again on the above chart).

Also, place the stop-loss under the bottoms.

You can also enter a position at the last kiss of the neckline.

But these rules are the same old stereotypes for this pattern and you can use my strategies to find better positions for opening your trade.

Positions for opening your trade

In 2015, this pattern formed on the EUR/GBP chart on a weekly time frame, which took a year to make.

This pattern was so strong that the price reversal continued beyond the period shown on the chart.

Is this what was meant by the original wording?

This pattern was ideal for companies that enter positions in a monthly time frame.

Suppose you are an American bank wanting to profit from this position. What should you do?

It would be best if you waited for the neckline to be broken by a bullish Marubozu candle.

After this candle forms, you should enter your position above the highest price of this candle at 0.75567 GBP and place your stop-loss either under the lowest price of this candle at 0.72933 GBP or below the three bottoms.

Again, your take-profit level should be the same distance as from the neckline to the bottoms.

But you can enter a position in another place.

When the price pulls back to the neckline and rises, you can enter another position when the top of this pullback is broken at 0.77852 GBP.

You can choose the same take-profit trigger as with the previous patterns.

Further reading
Adam and Eve Double Top & Double Bottom Pattern

Adam and Eve Double Top & Double Bottom Pattern

Thomas Bulkowski, who spent a lot of time researching classical patterns, also investigated the shape of the patterns.

He believed that the formation of patterns directly affects their performance.

Before this research, analysts believed that sharp tops and bottoms were more potent.

The probability of reversal and trend change in such patterns is higher, but Bulkowski presented more exciting data.

He named the peaks, and according to Bulkowski, these patterns have different actions.

Of course, these differences are not so bold as to change our analysis, but they are helpful to know, and I usually pay attention to the shape of the patterns, and I recommend you to learn them.

He called the pointed peaks, which consist of a sharp candle and a long shadow, ‘Adam.’

And peaks that consist of two or more candles and have a wider surface are called ‘Eve.’

Bearish reversal Adam and Eve Patterns; in descending order of power and efficiency:

  • 1st. Eve & Eve Double Top (EEDT)
  • 2nd. Adam & Adam Double Top (AADT)
  • 3rd. Adam & Eve Double Top (AEDT)
  • 4th. Eve & Adam Double Top (EADT)

Bearish reversal Adam and Eve

Eve & Adam Double Top

In Bulkowski’s opinion, the Eve & Eve Double Top pattern is the most definite pattern.

After that, comes Adam & Adam, then Adam & Eve, followed by Eve & Adam.

But for the Double Bottom pattern, Adam & Adam is the weakest of the four.

Bullish reversal Adam and Eve Patterns; in descending order of power and efficiency:

  • 1st. Eve & Eve Double Bottom (EEDB)
  • 2nd. Adam & Eve Double Bottom (AEDB)
  • 3rd. Eve & Adam Double Bottom (EADB)
  • 4th. Adam & Adam Double Bottom (AADB)

Eve & Eve Double Bottom

Eve & Adam Double Bottom

I usually enter the position when I see the Eve & Eve pattern because it has been proven to me that it is more potent than the other patterns and indicates a high probability of reversal.

Conclusion

Well, in this article, I taught you the Double Top and Triple Top patterns, and in the discussion of bullish reversal patterns, you also learned the Double Bottom and Triple Bottom patterns.

Now it’s time to move on.

Find a chart showing one of these patterns and see how it works.

It may be difficult for you to find these patterns and identify them initially.

If you look carefully at places where the price has reversed and the trend has changed, you will see these patterns.

I will give you a final piece of advice, though.

Only with a lot of practice will you see these patterns and profit from them.

Thank you for taking the time to read my thoughts.

Further reading