What Is The Rounding Bottom Pattern & How To Trade With It

The Rounding Bottom is a chart pattern that identifies a series of price movements. These price fluctuations appear like an alphabet U. The Rounding Bottom is a long-term reversal pattern that is best suited for weekly charts. It is also referred to as a saucer bottom, and represents a long consolidation period that turns from a bearish bias to a bullish bias. The trough is very rounded with a flat bottom. However, in many cases, there are be several bearish peaks, but they do not call into question the pattern’s validity.

What is the Rounding Bottom pattern?

As its name suggests, Rounding Bottoms is a kind of slope that occurs after a long downtrend. The Rounding Bottoms mention that the price is about to reverse. Usually, traders look for the pattern on a weekly or a monthly chart; however, Rounding Bottoms rarely emerge on the chart.

The Rounding Bottom signifies that there is a strong supply, making the price decline. After this, the upward movement happens only when the buyers start to push the price by buying at a low rate. This causes the Rounding Bottoms to complete its formation. Once the price reverses from downtrend to uptrend, it may continue to move in the upward direction. Thus indicating a reversal from bearish to bullish.

Rounding Bottom on a chart
Rounding Bottom on a chart

 

The Rounding Bottom has a similar structure like the cup and handle pattern. The difference occurs in a handle. The cup and handle pattern forms the handle with a temporary downtrend.

The rounding Bottom chart pattern is also known as a saucer bottom as it kind of looks like a bowl.

  • The price often pauses when it returns to the neck line
  • The flatter the trough, the more forceful the movement at the break in the neck line could be
  • In case of pullback on the neck line after the break, the upward movement might be less forceful
  • If a large bullish peak occurs after the trough has formed, it is possible to draw a bearish line to connect the high point that preceded the formation of the rounding bottom and the high point of the bullish peak

How to use the Rounding Bottom pattern?

To use the pattern, traders must divide it into several areas. Firstly, there is a downtrend, as the asset’s price is in decline. A keynote to add here is that the trading volume is high when the price first makes its move in the downward territory. The volume then decreases as the Rounding Bottom tries to establish itself. When the price of the pattern increases with the upward momentum, the volume also increases.

Secondly, when an asset’s price increases, the Rounding Bottoms break the low point and indicate the direction of the price in the upward region.

The trading volume is an essential part of the pattern. The volume in a Rounding Bottom chart pattern ideally follows and confirms the direction of the price. However, one can’t have a perfect trading volume. Volume has an uncertain nature as it sometimes the high volumes occur when the market is in decline, and sometimes low volume emerges with the rising market. Traders may need to confirm these volume patterns before initiating their trading positions.

After the confirmation of the trading volume, traders could consider taking buy positions after the decline of the pattern. Traders can also take sell positions if the price is in the middle of the pattern and exit the trade when the pattern makes upward. This will depend on the individual trading strategy and money management being implemented.

Rounding Bottom trading strategy

The Rounding Bottoms forms on a daily or a weekly chart. Therefore, the pattern is more valuable for long-term traders. Traders need to be patient if they want to locate the Rounding Bottom, as it makes a rare appearance. In terms of a target, as with all trading methods and strategies, the trader’s focus should always be on achieving an acceptable risk to reward. This means always banking more on a winning trade than you lose on a losing trade.

Rounding Bottom buy strategy

  • Locate the Rounding Bottom on a daily or weekly chart.
  • Wait for the price bar to go bullish before entering.
  • Enter the trade after the formation of the saucer.
  • Place a stop-loss near the recent low from the entry point.
  • Exit the trade on high.

Rounding Bottom sell strategy

  • Locate the Rounding Bottom on a daily or weekly chart.
  • Wait for the price bar to go bearish before entering.
  • Enter the trade before the formation of the saucer.
  • Place a stop-loss near the recent high from the entry point.
  • Exit the trade before the upward movement.

Rounding Bottom conclusion

The rounding bottom pattern consists of a rounded bottom U formation and a neckline resistance level in terms of structure. The U formation is characterized by bearish and bullish sides from the initial declining slope to the second part of the actual pattern that is in a bullish direction.

The Rounding Bottom Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The Rounding Bottom is an interesting pattern that suggests a reversal from bearish to bullish. Generally, a rounding top will also represent a bearish future outlook for the currency pair. However, investors should be cautious when following a rounding top as support for the currencies price can occur causing several rounding tops to follow in a double top pattern or triple top pattern. Although it appears infrequently, it can pinpoint potential entry and exit points for the traders.

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