What is the rounding bottom pattern? Although this pattern has a high success rate, it's relatively rare. But when it comes, you'll want to be ready for it. This highly reliable bullish reversal pattern is one you can't afford to forget.
Just like a roller coaster, stocks go up and down in price every day. We rarely see them soaring; they need time to pause and digest, and that's exactly what this pattern does.
A rounding bottom when it comes to stock charts indicates a positive market reversal. To put it in another way, investor expectations and momentum (i.e. sentiment), is gradually shifting from bearish to bullish.
Often, it's more of a pausing pattern, allowing the stock to consolidate before it builds enough energy to move up in price.
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We see rounding bottoms at the end of extended downward trends. Like I mentioned above, they signify a reversal in long-term price movements.
Sometimes the pause and reversal takes time, even eight to twelve weeks, depending on market conditions. Alternatively, it may take years.
Bullish Bears Dan would be pointing about the rounding bottom pattern in our live trading room if he sees one. Make sure to check it out if you haven't yet.
Visually, a rounding bottom looks like the cup and handle pattern, but doesn't have the temporary downward trend of the "handle" portion. Remember, the C&P patterns is a continuation pattern whole the rounding bottom pattern is a reversal pattern.
Similarly, there are other chart patterns that are first cousins to the rounding bottom, such as the saucer bottom and half-pipe bottom pattern.
Above all, to be sure it's a rounding bottom breakout, you must have an influx of substantial volume. Generally speaking, the trading volume in a rounding bottom chart pattern ideally follows (and confirms) the direction of the stock price.
You must have volume confirmation because volume confirms the price action.
I suggest you put the volume indicator on your chart and draw a line to connect the tops for each price frame. As can be seen, the volume will also mirror the same rounding pattern. In the long run, this is a straightforward method to validate the pattern visually.
Your Entry Point
Your entry point is the top of the U or also referred to as the "neckline," where price breaks the resistance level.
Without a doubt, the rounding bottom pattern is a technical setup for the patient trader. Likewise, being able to identify stock chart patterns is a powerful asset for any trader.
Given these points, by learning to recognize patterns early on in trading, you can make profits from both breakouts and reversals. I'm a firm believer that combined with the proper technical analysis you will be successful. Let Bullish Bears show you how!