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The Adam & Adam double bottom is a twin bottom chart pattern with a
low break even failure rate but a mediocre performance rank. The pattern becomes a true double
bottom only when confirmed (price closes above the center peak). For more information, see pages 213 to 228 of the
book Encyclopedia of Chart Patterns, Second
Edition, and the following...
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Score your chart pattern for
performance by clicking
here |
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Important Bull Market Results
Overall performance rank (1 is best): 10 out of 23
Break even failure rate: 5%
Average rise: 35%
Throwback rate: 64%
Percentage meeting price target: 66%
Identification Guidelines
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Characteristic |
Discussion |
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Price trend |
Downward leading to the pattern |
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Shape |
Two distinct valleys that
look similar. Adam bottoms are narrow, V-shaped, sometimes with one long price spike. |
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Peak |
The rise between bottoms should
measure at least 10%, but allow variations. |
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Bottom price |
The price variation between
bottoms is small. The best performance comes from bottoms between 2% and 5% apart. The two valleys should appear to bottom
near the same price. |
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Separation |
The twin valleys are several
weeks apart with most falling in the 3 to 6 week range. Wider than 8 weeks and performance deteriorates. |
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Confirmation |
The double bottom confirms
as a true double bottom once price closes above the peak between the two valleys. |
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Volume |
Usually higher on formation
of the left valley. |
Trading Tips
A trading setup related to double bottoms and throwbacks is located here.
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Trading Tactic |
Explanation |
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Measure rule |
Reference the figure to the right. Compute the height from
the highest peak (A) to the lowest valley (B) in the pattern then multiply it by
the above “percentage meeting
price target.” Add the result to the breakout price (point A, the highest
peak in the pattern) to get the target (C). |
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Stop |
Place a stop loss order slightly
below the lower of the two bottoms (point B in the figure to the right). |
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Price reversal |
Price must have something
to reverse, so if the decline leading to the double bottom is small, expect a small rise. |
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Big W |
Look for a double bottom with
a tall left side, one with a steep decline and few or no price consolidations along the way. Expect price to return to near
where the downtrend began. |
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Confirmation |
Wait for confirmation – price
to close above the peak between the valleys. If you don’t wait, there’s a 64% chance that price will continue
lower without confirming the double bottom. |
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Handle |
Sometimes price will confirm the
double bottom then waffle up and down, forming a handle. When price breaks out of
this region, it often moves up in a strong trend. The figure to the right shows
an example. |
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Flat base |
Expect a large rise if the
double bottom appears after a long, flat base. Use the weekly scale to find the
flat base – the double bottom will look like a pothole in a road. The figure
to the right shows an example. |
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Trends |
A short-term decline leading to
the double bottom results in the best postbreakout performance. |
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Yearly low |
Double bottoms within a third of
the yearly low perform best. The link to the left discusses performance and this
link provides more
information. |
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Volume trend |
A downward volume trend suggests
good postbreakout performance. The link on the left shows an example and provides a
list of chart patterns that perform best after a downward volume trend.
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Throwbacks |
Throwbacks hurt postbreakout
performance. The link to the left defines throwbacks and this
link discusses
performance. |
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 Measure Rule
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 Handle
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 Flat Base
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Example
The above figure shows an example of a Adam & Adam double bottom chart pattern. The two Adam bottoms are pointed
needles with a good rise between them (point B) and they appear after a downward price
trend. The Adam & Adam double bottom confirms as a valid chart pattern when price closes above point B, shown as the lower horizontal blue line.
To calculate a price target, subtract the price of the lower of the two Adam valleys from
the price at peak B (the highest high between the two bottoms) to get the height. Multiply
the result by 66% (the percentage meeting price target from Important Bull Market Results table near the top of this
page) and add the result to B. That gives a target of 4 cents above
C. Even though price fell short of the target, overhead resistance highlighted by the green line doubled as a
good price target, indicating profits should be taken near there.
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