Dear readers, we greet you all with respect. Financial markets promise each of us unique profit opportunities with their wide range of offerings. Whether you prefer long-term or short-term trading, financial markets pave a path that suits everyone's goals. In this process, by using fundamental and technical analysis tools, we can grow our financial assets and take steps toward financial freedom. Chart patterns used in technical analysis are key tools in taking advantage of these opportunities. Chart patterns allow us to clearly understand market movements and take positions at the most opportune times. One such pattern is the Rounding Bottom Saucer pattern, which we will now discuss. In this article, we will provide a straightforward overview of what the Rounding Bottom Saucer pattern is, how to identify it, and how it can be used in financial trading.
What is the Rounding Bottom Saucer
Pattern?
I believe you now have some knowledge about reversal patterns. We can include the Rounding Bottom Saucer pattern among these types
of patterns as well. The Rounding Bottom Saucer pattern is usually seen at
the end of a downtrend and is a reversal pattern. We can also refer to this
pattern as a "bullish reversal pattern" because it forms after a
downtrend and leads to a trend change, initiating an uptrend. It has a very
simple and understandable structure on the price chart. In fact, it can be
considered one of the simplest patterns. The name of the pattern comes from the
shape that forms on the price chart, resembling a saucer or bowl. Prices start
in a downtrend, form a bottom, and then recover, beginning an uptrend. This
price movement creates a visual similar to the rounded base and upwardly
widening sides of a bowl. The saucer or bowl analogy effectively explains the
curvature and gradual reversal process of this pattern. The Rounding Bottom Bowl pattern indicates that the
downtrend has ended and that prices are slowly beginning to recover.
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| The Rounding Bottom Pattern |
Note: While you may encounter the Rounding Bottom Saucer
pattern on a price chart, you might also see the Rounding Top Saucer pattern.
The Rounding Bottom pattern forms after a downtrend and signals the beginning
of an uptrend, whereas the Rounding Top pattern indicates that an uptrend may
be followed by a downtrend. To explain simply:
The Rounding Bottom pattern is a chart formation where
prices first decline, then form a bottom, recover, and finally rise with an
upward movement. In contrast, the Rounding Top pattern is a structure where
prices first rise and form a peak, then undergo a correction, and ultimately
begin a downtrend. Understanding the differences between these two patterns is
crucial for exactly analyzing market trends and shaping your trading decisions
accordingly.
The Main Features of the Rounding Bottom Saucer(Bowl) Pattern
The Rounding Bottom Saucer (Bowl) pattern forms a rounded bottom resembling a bowl. Prices
first move in a downtrend, then follow a horizontal path, and lastly recover
with an upward trend. The creation of a soft and rounded shape that resembles a
bowl from price movements is a basic feature of this pattern. This shape develops
through specific stages, and each stage represents a particular behavior of the
prices. Here are the main features of the pattern formed through this process:
Left Side of the Saucer: The
beginning of the pattern normally starts with a pronounced downtrend. Negative
news in the market, weak economic indicators, or poor performance by a company
can contribute to this decline. During this period, the market experiences a
phase where sellers are dominant, with supply exceeding demand. Prices drop
gradually or sometimes rapidly during this downturn. This decline period forms
the left side of the bowl, which is one of the basic features
of the pattern.
Bottom of the Saucer: When prices reach a certain level, a
period begins where the balance between supply and demand is established,
meaning the price no longer declines further. During this period, prices usually
move in a narrow range, following a horizontal trend. Price fluctuations may be
very low, and the market may remain indecisive for a while. This stage forms
the bottom of the bowl, which is another feature of the pattern.
Right Side of the Saucer: After reaching the bottom of the
bowl, prices begin to rise again. Prices usually increase gradually, similar to
the decline during the downtrend. This rise is often triggered by a positive
change in the market or improved expectations. As a result, the right side of
the bowl in the pattern is formed. The right side of the bowl often mirrors the
left side symmetrically. Sometimes, even if it is not perfectly symmetrical, it
rises with a similar slope.
Neckline: In the structure of the pattern, the rounded part
of the bowl is an important component that stands out and is one of the primary
features of the pattern. This roundness enhances the prominence of the Rounding
Bottom pattern and makes the overall trend of price movements clearer. The
imaginary line that connects the high level where the bowl's roundness begins
with the high level where the roundness is about to end is called the
"neckline." This line, which connects the two highest points of the bowl,
marks the completion point of the Rounding Bottom pattern.
The Rounding Bottom pattern is not always perfectly
symmetrical. The slopes, durations, and price movements of the left and right
sides may vary. Additionally, the formation of the Rounding Bottom pattern can
take days or even weeks. Its long-term nature reflects the broader, long-term
trends in the market. All these features explain why the Rounding Bottom
pattern is considered a reversal pattern. The downtrend gradually comes to a
halt, the market reaches equilibrium, and then a new uptrend begins. This indicates
that the market has recovered from the bottom and is in the process of reaching
a new peak, as observed.
How to Trade the Rounding Bottom Pattern?
The Rounding Bottom pattern is not frequently seen on price
charts because it signals long-term trend changes. This pattern indicates the
end of a downtrend and the impending start of a new uptrend. For anyone trading
in the market, this is a trend reversal signal that should not be missed. It is
often considered a buy signal, and buying may be preferred when the neckline is
broken. However, it cannot be ignored that this pattern has a long-term
structure and takes time to form. Therefore, it should be monitored carefully.
The buy signal commonly occurs with the break of the neckline in the Rounding
Bottom pattern. A more secure strategy is to wait for a pullback after the
break and see if the price tests the neckline. When the price tests this level
as support and then moves upward again, it often provides a stronger buy
signal.
- Buying: You can buy when the neckline is broken or after the break has been confirmed.
- Stop Loss: The stop loss level may need to be set wider in a volatile market. In this case, the stop loss order should be placed below the lowest point of the rounded bowl. In a less volatile market, placing the stop loss just below the neckline after the break would be more appropriate.
- Target: The initial profit target is set at the same distance above the bowl's depth. This distance is calculated by measuring from the lowest point of the bowl (saucer) to the neckline and then adding this distance above the breakout point. This provides an estimate of how high the price could rise after the formation is complete.
The chart below depicts an example of the Rounding Bottom
pattern trade in the smallest detail. You can clearly see this pattern on the
chart of the USD/CAD currency pair. Formed at the end of a downtrend, this
pattern led to a clear reversal in the market. After the neckline was broken,
the expected uptrend began, and prices exhibited an upward movement. This
example illustrates how the Rounding Bottom pattern can be a powerful signal
source for traders.
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| Rounding Bottom Signals Bullish Reversal in USD/CAD |
What you need to know: The information presented here is
intended to provide a general overview of the topic and does not constitute
investment advice. You may need to seek professional guidance to make decisions
suited to your personal financial situation. Financial markets always carry
risks, and patterns alone do not guarantee definitive results. Technical
analysis tools like the Rounding Bottom pattern should be used to support
trading decisions, but it is important to always consider market conditions and
other analytical methods as well.
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