Rounding bottom pattern sometimes knows as a “saucer bottom” pattern, is known for being able to predict long term upward trend. Very similar to the cup and handle pattern, only without the bother of a temporary downward trend that makes up the “handle.” The pattern is a long-term reversal pattern that is best applied to weekly charts, representing a consolidation. That turns from bearish to bullish.
This rounding bottom pattern can be spotted at the end of depressingly long downward trends. The timeframe for this pattern can be weeks, months, or even years in length and is considered to be one of the more rarified patterns to form in the marketplace. Most of the time, this pattern indicates that the long downward trend, often caused by an excess of stock supplies, is coming to an end as investors start to buy in at low price points reversing the downward movement. Once this starts, it typically increases demand and pushes up the stock price.
This allows the stock to “break out” and begin a long-lasting and positive reversal that investors can take advantage of if they choose to be one of those who buy low and are willing to sit on the stock for a while until it tops out again. This is because the length of time for recovery can be varied, and may take a long time to find its peak. Investors should prepare for this lengthy-time period and have patience while the price continues to build.
Understanding the Rounding Bottom Pattern
the rounding bottom pattern looks very similar to the cup and handle pattern, but without the brief downward trends represented by the handle. The initial declining slope of a rounding bottom indicates that there is too much supply coming on the market, which pushes the stock or index down. Here traders start to realize the stock is trading at a discount, and buyers begin to enter the market at the discounted price. This increase in demand then pushes the stock higher as demand continues to increase.
As the rounding bottom completes its formation, the stock breaks out into a full bullish pattern. The whole process is an indication of a change in sediment by investors from bearish to bullish, which increase momentum upwards. Although the pattern has a high success rate, it is significantly rarer than other technical analysis charts.
Attributes
- Pattern type: Continuation
- Indication: Bullish
- Breakout confirmation: When there is above-average volume, and the stock closes above the lip of the rounding bottom.
- Measuring: The price target is obtained by measuring the distance between the height of the highest high and the lowest low and then adding that to the breakout level.
- Volume: There is an increase in volume into the shape of the rounding bottom, balanced during the middle, with raising volume towards the right side, which continues on the breakout.
Conclusion
the rounding bottom pattern, which is given by the visual resemblance of a bowl-like appearance. It represents a gradual price shift by investors from bearish to bullish. The best confirmation of the pattern comes from the volume, which confirms a rounding bottom by the high volumes during the decline, then flat volumes during the middle range, and higher volumes again as the price increases. Traders were able to identify the rounding bottom successfully should expect upward price action equal to the size of the pattern. To learn more about stock chart patterns and how to take advantage of technical analysis to the fullest, be sure to check out our entire library of predictable chart patterns. These include comprehensive descriptions and images so that you can recognize important chart patterns scenarios and become a better trader.
