Chartered Market Technician (CMT) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

The correct choice, characterized by thin, narrow price spikes occurring over a short timeframe, is the Adam Bottom pattern. This pattern typically appears when prices exhibit a sharp and rapid decline, followed by a brief rally that often shows as narrow spikes. The Adam Bottom signifies a potential reversal in the bearish trend, leading traders to anticipate a bullish move.

In the Adam Bottom formation, the narrow price spikes reflect market indecision and volatility, which can indicate that buyers are beginning to gain control after aggressive selling. Identifying this pattern allows traders to position themselves advantageously before a possible upward trend starts.

The other patterns mentioned have different characteristics and implications. The Diamond Bottom involves a more complex formation that resembles a diamond shape and typically indicates a market reversal, but it doesn't specifically manifest as narrow price spikes. The Head and Shoulders pattern is also a reversal pattern but features a more significant structure with three peaks. Lastly, the Cup and Handle pattern is characterized by a rounded bottom and subsequent consolidation, which is distinct from the sharp price movements seen in the Adam Bottom. Understanding these distinctions helps traders make better-informed decisions in the market.