The rounding bottom chart pattern is called a reversal chart pattern. It is developed after a price decline. As the stock is trends lower the rate of the decline will begin to slow down. The process is followed by a range pattern, which shifts into a slow gradual increase. It will increase leads to a bullish move. The pattern is identified by a series of price movements and forms the shape of a "U" in graphical form. This pattern is seen at the end of the extended downward trend and signifies a reversal in long-term price movements. The pattern has a time frame that varies from several weeks to several months. It is deemed by many traders as a rare occurrence. The volume and price move in tandem where volume will confirm the price action.
Working
This is the same as the cup and handles chart but it does not experience the temporary downward trend of the "handle" portion. At the initial stage decline slope of a rounding bottom will indicate the supply and force the stock price down. The transfer to an upward trend will occur when a buyer enters the market at a low price which increases the demand for the stock. The stock breaks out and continues in a new upward trend after completion of the pattern. It is an indication of a positive market reversal means an investor expectation and momentum.
The rounding bottom chart pattern is also called a saucer bottom. The chart gives the visual resemblance and appearance like a bowl. So the recovery period is like the downturn that takes months/years to coalesce. Investors should be aware of the potentially lengthy patience necessary to realize a full recovery in stock price.
The chart is divided into several areas as first is the prior trend that shows the buildup to the stock's initial descent toward low. The trading volume should be heavy at the start of the decline. The pattern should decrease the same as the share price level off and approach the bottom of the pattern formation. Stock will recover and move to complete the pattern, volume increases as investors buy shares again. It will break out of its low point when the stock price closes above the price prior to the start initial decline. When the rounding bottom completes the formation process the stock will break out into a full bullish pattern. This process is an indication of a change in sediment by investors from bearish to bullish which increases momentum upwards. The pattern has a high success rate as it is rarer than other technical analysis charts.
Attributes
Pattern type :It is a Continuation
Indication :It is a Bullish
Breakout Confirmation : When there is above-average volume, 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 lowest low. Then add to the breakout level.
Volume : There is an increase in volume into the shape of the rounding bottom, balanced during the middle, with rising volume towards the right side which continues on the breakout.
Trading
The strongest confirmation comes when the volume indicator shows high volumes on the decline, flat volume on the range, and increasing volumes on the reversal. In the next process after identifying the pattern, you need to draw the neckline. So draw a horizontal line across the top of the bearish and bullish side of the pattern. In this pattern, the breakout will occur when the price penetrates inside the neckline in a bullish direction. The stock shows strength as it crosses through the neckline. The strength will display itself in the form of price expansion and increase the volume.
Conclusion
The rounding bottom pattern is given by the visual resemblance of a bowl-like appearance. It will represent a gradual price shift by investors from bearish to bullish. It 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 who are able to identify the rounding bottom successfully should expect upward price action equal to the size of the pattern. The pattern will represent the gradual price that shifts from bearish to bullish. The strong confirmation of the pattern will come with the volume indicator. The rounding bottom will start with high volume during the decline and flat volumes during the range. At the last point it increases volumes at the reversal.
