Adam and Eve Pattern

The Adam and Eve pattern - also known to some as the Adam and Eve double bottom or double top chart - is a unique pattern that appears in candlestick graphs after a long downtrend or uptrend, and can be used in order to predict a change in direction. In other words, it is a multi-candle formation that can be used in technical analysis to determine when to enter and exit a trade. 

Identifying the Adam and Eve Pattern

The name of the Adam and Eve pattern comes from the shape of the lowest regions of the downtrend, or the highest regions of the uptrend, in the candlestick graph.

Let's first consider what this would look like when the initial direction is a downtrend as shown above.

The first region, which is considered Adam, consists of a single day downtrend candle, creating a rather sharp, v-shaped dip. After a brief pullback, the second low, which is considered Eve, is wider due to an oscillation of green and red candles, leading to a u-shaped point.

It is important to note that the second low, or the Eve, should not have quite as low a minimum as that of Adam.

Likewise, when starting with an uptrend, Identifying an Adam and Eve Pattern is very similar. A single day, uptrend candle will cause a sharp, upside down v-shape for Adam, and after a pullback Eve will be formed through a wider, upside down u-shape, with oscillating green and red candles.

Here, Eve will not rise quite as high as Adam. An example of this can be seen in the image below.

Using Adam and Eve Patterns to Enter Trades

The Adam and Eve Pattern generally indicates a change in trend. Because of how obvious the Adam and Eve pattern can be to the naked eye, many traders become very eager to enter their trades. However it is not recommended that you rush in straight after you identify the trade.

It is important to note that the Adam and Eve pattern can only be considered to be completed after the change in direction passes the resistance level which was created by the brief pullback between Adam and Eve. This then becomes a critical point in your technical analysis as it changes from a resistance to a support.

However, it is still recommended that you hold off entering the trade until the support has been tested at least once. This is a common occurrence for the Adam and Eve pattern. Only once the support has been tested should you consider entering the trade. 

It can also be noted that the Adam and Eve pattern works best when the Adam and Eve minimums or maximums are on a support or resistance level, further encouraging the change in direction.

Pairing Adam and Eve with Other Indicators

The Adam and Eve pattern can provide information on entering or exiting a trade, but it is always best to pair several indicators with any candlestick pattern in order to further confirm what you are able to see with your naked eye.

These indicators might provide information on volume etc. which you cannot see in the graphs, and will give further confirmation, or encourage caution before placing your trade. 

Adam and Eve Pattern with RSI Indicator

The RSI indicator, a momentum indicator, can be paired with the Adam and Eve pattern to confirm the possible change in direction. The RSI indicator would generally be above 50 in an uptrend, and below in a downtrend, often going as high as 70 or low as 30 depending on the direction.

When an Adam and Eve pattern is identified, it can be confirmed by checking the RSI. If the RSI is hovering around 50, this confirms a possible change in direction.

Likewise, the RSI indicator can be used to indicate when to exit a trade. The relevant values, as mentioned above, are 70 and 30. If the line changes direction after crossing either of those lines it could indicate a possible change.

You can read about Laguerre RSI here.

Adam and Eve Pattern with MACD

MACD can also confirm the accuracy of an Adam and Eve pattern. It appears at the bottom of the screen in the form of a red and green histogram, with green indicating an upward trend and red indicating a downward trend.

If, in the midst of the Adam and Eve pattern - usually in the pullback between the Adam and Eve bumps - the histogram changes color and maintains it until the pattern is completed, this could indicate confirmation of the trend change.

Adam and Eve Pattern with EMA

EMA lines are generally used in pairs of different periods, depending on your trading style. Depending on which line is on top (shorter or longer period), a general direction is indicated, which can be used to corroborate the prediction of the Adam and Eve pattern.

Adam and Eve Pattern Conclusion

The Adam and Eve pattern can be a very effective way of warning you that it might be time to enter or exit a trade due to a change in trend direction.

However, like all other patterns, they are not perfect. Real people are trading, influencing the market in real time, and because of that the use of only patterns is fundamentally flawed, regardless of how accurate they may seem.

However, the Adam and Eve pattern is a great way to identify possible market changes, which can be further analyzed through the use of other indicators, as well as with general market research. Thus, knowledge of the Adam and Eve pattern is useful for every trader to have. 

Remember, any form of trading comes with risk, and the key to being a successful trader is risk management. Do not trade with any funds that you are not willing to lose completely, regardless of how sure you are about your trade.

You might be also interested in What is a Half Trend Indicator? and Using a First Green Day Scanner to Trade Stocks using this Pattern.