The Adam part of pattern is a sharp downward move, with a sharp upward move back up. I highlighted those days in red.
The Eve part is the rounded bottom, which occurs afterwards, that I highlighted in green
I trade positive reversals, so I would potentially be buying the bottom of the Adam section or the bottom of the Eve section. If you were shorting, you could trade near the top of the Adam pattern, right before Eve starts, if you sense that that upward move is petering out and Eve might indeed form.
I never made money by blindly following patterns though. I made money when I started to understand the psychology behind the pricing action. Since no pattern is perfect, and can breakdown at any given time, it is important to know the human emotions behind the move. So here’s what I think is happening behind the scenes…
The Eve part is the rounded bottom, which occurs afterwards, that I highlighted in green
I trade positive reversals, so I would potentially be buying the bottom of the Adam section or the bottom of the Eve section. If you were shorting, you could trade near the top of the Adam pattern, right before Eve starts, if you sense that that upward move is petering out and Eve might indeed form.
I never made money by blindly following patterns though. I made money when I started to understand the psychology behind the pricing action. Since no pattern is perfect, and can breakdown at any given time, it is important to know the human emotions behind the move. So here’s what I think is happening behind the scenes…
What is the psychology behind the Adam and Eve Pattern?
So for whatever reason, a stock has had a very sharp selloff: day after day, large red bars. The selloff could be because of bad earnings, good earnings that didn’t meet expectations…doesn’t matter. I don’t really care.
Each day, gravity takes over and more holders throw in the towel, with each successive day printing a lower low. Along the way, maybe shorters have entered and taken positions (this accelerates the decline, since selling short is buying low and selling high, but in reverse, which on the decline here, adds to the sell orders of holders) continuing to push the stock lower.
Then, one day we have a higher low. Buyers sense that the stock is way oversold. Everyone takes notice. Buyers enter the market in droves. That starts the sharp uptrend reversal as the stock snaps back.
Short sellers who entered early on the downtrend close out their positions to protect their profits (more buys). Short sellers who got in a bit too late on the last leg of the down move who had expected the trend to continue close out at a loss (more buys).
Finally, we reach some sort of top. The stock hesitates, doesn’t know where to go.
This is the start of the Eve pattern. Now we have buyers from the bottom of Adam selling for a profit because the stock is declining again and they need to protect their profits. Short sellers again taking positions, hoping for a decline. At this point, the initial news (or whatever caused the sharp selloff:Adam) has worn off and sunk in. The market is now processing what happened and thinking a bit more rationally. There is less sharply defined fear and greed emotion.
So the stock meanders down, sellers somewhat dominating and then declining towards the bottom of Adam again. At this point, buyers are now becoming more insistent, feeling confident that this is again reaching a bargain point. They also have additional confidence that at this is where prior support has shown itself before because that is the bottom of Adam, where buyers came in before.
Over time, the rounded bottom of Eve forms, buyers become more confident, sellers start to dry up and it moves higher towards the price level of the entire move.
Towards the top, the right-hand side of the Eve pattern, the stock could go either way: it could roar back up to new highs, or hit resistance again and head down for good.
The Eve part is the rounded bottom, which occurs afterwards, that I highlighted in green
I trade positive reversals, so I would potentially be buying the bottom of the Adam section or the bottom of the Eve section. If you were shorting, you could trade near the top of the Adam pattern, right before Eve starts, if you sense that that upward move is petering out and Eve might indeed form.
I never made money by blindly following patterns though. I made money when I started to understand the psychology behind the pricing action. Since no pattern is perfect, and can breakdown at any given time, it is important to know the human emotions behind the move. So here’s what I think is happening behind the scenes…
The Eve part is the rounded bottom, which occurs afterwards, that I highlighted in green
I trade positive reversals, so I would potentially be buying the bottom of the Adam section or the bottom of the Eve section. If you were shorting, you could trade near the top of the Adam pattern, right before Eve starts, if you sense that that upward move is petering out and Eve might indeed form.
I never made money by blindly following patterns though. I made money when I started to understand the psychology behind the pricing action. Since no pattern is perfect, and can breakdown at any given time, it is important to know the human emotions behind the move. So here’s what I think is happening behind the scenes…
What is the psychology behind the Adam and Eve Pattern?
So for whatever reason, a stock has had a very sharp selloff: day after day, large red bars. The selloff could be because of bad earnings, good earnings that didn’t meet expectations…doesn’t matter. I don’t really care.
Each day, gravity takes over and more holders throw in the towel, with each successive day printing a lower low. Along the way, maybe shorters have entered and taken positions (this accelerates the decline, since selling short is buying low and selling high, but in reverse, which on the decline here, adds to the sell orders of holders) continuing to push the stock lower.
Then, one day we have a higher low. Buyers sense that the stock is way oversold. Everyone takes notice. Buyers enter the market in droves. That starts the sharp uptrend reversal as the stock snaps back.
Short sellers who entered early on the downtrend close out their positions to protect their profits (more buys). Short sellers who got in a bit too late on the last leg of the down move who had expected the trend to continue close out at a loss (more buys).
Finally, we reach some sort of top. The stock hesitates, doesn’t know where to go.
This is the start of the Eve pattern. Now we have buyers from the bottom of Adam selling for a profit because the stock is declining again and they need to protect their profits. Short sellers again taking positions, hoping for a decline. At this point, the initial news (or whatever caused the sharp selloff:Adam) has worn off and sunk in. The market is now processing what happened and thinking a bit more rationally. There is less sharply defined fear and greed emotion.
So the stock meanders down, sellers somewhat dominating and then declining towards the bottom of Adam again. At this point, buyers are now becoming more insistent, feeling confident that this is again reaching a bargain point. They also have additional confidence that at this is where prior support has shown itself before because that is the bottom of Adam, where buyers came in before.
Over time, the rounded bottom of Eve forms, buyers become more confident, sellers start to dry up and it moves higher towards the price level of the entire move.
Towards the top, the right-hand side of the Eve pattern, the stock could go either way: it could roar back up to new highs, or hit resistance again and head down for good.
Comment:
Comment:
PERFECT
PERFECT
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WOOOOOW
WOOOOOW
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symmetrical triangle
symmetrical triangle