Rounding Bottom Pattern

What is a rounding bottom pattern?

A rounding bottom is a long-term trend reversal pattern, whereby a downtrend turns into an uptrend. It resembles a flat extended 'U' and is also called a 'saucer'.

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Duration

A rounding bottom can happen in as little as 7 weeks, but usually occurs over months, and sometimes over a year. This is why it is easiest to spot on weekly charts.

Characteristics

A rounding bottom has a flat and extended 'U' shape. Look for a 12% to 20% retracement from peak to trough, milder than a cup with handle pattern. The pattern's base should take weeks to form and be relatively flat. However, a capitulation event may create a selling climax. The pattern should be relatively symmetrical, but need not be a mirror image of itself.

Trading volumes

Ideally, trading volumes should mirror the pattern: declining as the price falls, before stabilizing as the base forms and rising as the price advances in the final stage of the pattern. However, it's important that the rise in price be accompanied by rising volumes.

Rounding bottom trading tips

The pattern completes once the price breaks above the price level that marked the start of the decline. Open a long position at that time. As this pattern is a long term one, the strength of the advance should provide validation.

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