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

Rounding Bottom Pattern

The Rounding Bottom is a chart pattern that identifies a series of price movements. These price fluctuations appear like an alphabet U.

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.

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.

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 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. Although it appears infrequently, it can pinpoint potential entry and exit points for the traders.

I would prefer to use the majority of candlestick patterns such as the Rounding Bottom Pattern on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels, candlestick pattern has been formed or a particular indicator value has been reached.

The Rounding Bottom Pattern is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Rounding Bottom Pattern into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Rounding Bottom Pattern, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!