Adam and Eve Bottom

Entry Logic

• Enter long on a breakout above the neckline of the Adam and Eve bottom pattern.
• Confirmation is a high-volume breakout candle.
• Use a daily timeframe for this pattern.
• Entry should be above the 50-day SMA.
• This pattern works best in a market that is transitioning from a downtrend to an uptrend.

Exit Logic

• The profit target is a measured move from the breakout, equal to the depth of the pattern.
• Scale out 50% at the measured move target.
• Trail the remaining position with the 20-day EMA.
• Exit if price closes back below the neckline.
• Exit on a confirmed bearish reversal pattern.
• Exit if the trade is not profitable within 30 days.
• Exit if the MACD shows a bearish crossover.

Stop Loss Structure

• Place a hard stop below the low of the Eve bottom.
• A soft stop is a close below the 50-day SMA.
• Maximum dollar loss is $2500 per trade.
• Maximum percent loss is 5% of the account.
• The structural stop is the low of the Eve bottom.

Risk Management Framework

• Risk 2.5% of the account per trade.
• Daily loss limit is 7.5% of the account.
• Weekly loss limit is 15% of the account.
• Maximum drawdown is 40%.
• Minimum risk-reward ratio is 2:1.

Position Sizing Model

• Use a reduced position size for this long-term setup.
• Adjust size based on the volatility of the instrument.
• No conviction sizing is used.
• Do not scale into trades.
• Scale out at the measured move target.

Trade Filtering

• Avoid trading this pattern on penny stocks.
• Requires a clear Adam and Eve bottom pattern.
• Trade only stocks that are part of a major index.
• Avoid trading this pattern during a bear market.
• Do not trade in markets with no clear trend.

Context Framework

• The weekly chart should show a potential bottoming pattern.
• Price should be reclaiming the 200-day SMA.
• The setup should occur after a prolonged downtrend.
• The monthly chart should show signs of a potential long-term bottom.

Trade Management Rules

• Do not move the stop to breakeven until the first profit target is hit.
• Scale out 50% at the measured move target.
• Do not add to winning trades.
• Be patient, as this pattern can take a long time to play out.

Time Rules

• This pattern can form over several months.
• The entry is taken on a daily close above the neckline.
• The trade can last for several months to a year.

Setup Classification

• A+ setup: Perfect Adam and Eve bottom, high volume breakout, strong market reversal.
• A setup: Clear Adam and Eve bottom, moderate volume, neutral market.
• B setup: Messy Adam and Eve bottom, low volume, counter-trend.
• C setup: No clear pattern, avoid.

Market Selection Criteria

• Trade large-cap stocks that have been beaten down.
• Minimum daily volume of 2 million shares.
• The stock should have a strong balance sheet.

Statistical Edge Metrics

• Expected win rate is 70%.
• Average win is 5R.
• Average loss is 1R.
• Profit factor is 3.5.
• Expectancy per trade is 3.0R.

Failure Conditions

• The strategy fails if the breakout is false and price reverses.
• A common failure is a failure to follow through after the breakout.

Psychological Rules

• Have the patience to hold the trade for a long time.
• Do not get shaken out by short-term pullbacks.

Advanced Components

• Use fundamental analysis to confirm the company's value.
• A sector rotation analysis can identify emerging sectors.
• Avoid trading this pattern on multiple stocks in the same industry.
• The monthly chart must confirm a long-term bottom.

Location

• The setup is strongest when it forms at a multi-year low.
• The setup is weakest in a persistent bear market.
• The location of the pattern is the most important factor for success.