Trading Rounded Bottoms as Reversals and Trend Continuations
Summary
The document explains rounded-bottom, or saucer, formations as either a reversal after a decline or a pullback within an existing uptrend. In both cases, selling pressure appears to ease as price flattens and then turns upward. For a reversal, the pattern is considered complete when price recovers above the level where the preceding decline began. For a continuation, traders may wait for a move above the high where the pullback started, or enter earlier as price turns upward.
It suggests placing stops below a recent rising swing low or below the pattern low. A short-term target can be estimated by adding the pattern's height to the breakout point; for longer-term reversals, the article says a fixed target is unreliable because a new trend may persist. Earlier entries can offer a more favorable reward-to-risk profile but risk acting before confirmation. These are chart-based guidelines, not validated results, and the pattern may fail or fall short of its target.
Key ideas
- A rounded bottom can mark either a reversal from a downtrend or a pullback within an uptrend.
- A reversal is confirmed when price rises above the start of the preceding decline.
- Continuation traders can wait for a break above the pullback's prior high or enter earlier with less confirmation.
- Stops are placed below a recent swing low or the pattern low.
- A short-term target can be estimated by adding the pattern height to the breakout level, but long-term targets are uncertain.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.