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Rounding bottoms are chart patterns that are difficult to spot unless you look on the weekly
scale. The break even performance rank is small and the average rise is large, so they show good performance. For more
information see pages 595 to 607 of the book Encyclopedia of Chart
Patterns, Second Edition and the following...
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 Rounding bottom chart pattern
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Important Bull Market Results
Overall performance rank (1 is best): 5 out of 23
Break even failure rate: 5%
Average rise: 43%
Throwback rate: 40%
Percentage meeting price target: 57%
Identification Guidelines
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Characteristic |
Discussion |
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Weekly or daily |
The pattern appears on either
the daily or weekly chart. Concentrate on finding them on the weekly scale because the rounded nature is more apparent. |
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Price trend |
Price trends upward to the
pattern 62% of the time. |
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Shape |
Look for a rounded bowl shape,
usually over many months and usually after an upward price trend. |
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Bump |
Price may shoot up midway through the turn, near the
bottom, but price usually retraces most (not all) of the way back to where it
started. The Bump figure to the right shows an example as does the
figure at the bottom of this page.
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Volume |
The volume pattern mimics
the price action – a curving trend, appearing most often as a dome (51%, U-shaped: 43%, random shape: 6%). The trend
is upward 51% of the time. |
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Confirmation |
The pattern confirms when
price closes above the highest peak the pattern, either the left or right saucer lip (if it has one). |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
Compute the height from the right saucer lip to the lowest
valley in the pattern then multiply it by the above “percentage meeting price
target.” Add the difference to the right saucer lip to get a price target. If
the saucer doesn’t have a right lip then use the left rim. The Measure Rule
figure to the right use the left rip (A) to the
lowest valley (B) as the height. |
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Swingers |
Swing traders can sell if
price bumps up midway through the rounding turn. Buy back in once price retraces back to the price at which the bump started.
Price usually re-enters the rounding turn higher than the launch price. |
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Pause |
Price often pauses at the
price level of the left saucer lip. |
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Handle |
If the turn forms a handle at the right saucer lip, draw a
trendline from the left lip to the right and extended downward beyond the handle.
Buy when price closes above the trendline. The Handle figure to the right shows
this situation. The red line is the trendline
connecting the left rim to the right rim and extended downward. |
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Flat base |
A flat base (predominantly
flat over several months) leading to the rounding turn often leads to a powerful
rally. The Flat Base figure to the right shows an example. |
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Yearly high |
Patterns that breakout within
a third of the yearly high perform best. |
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Throwbacks |
Throwbacks hurt performance. |
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 Bump
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 The Measure Rule
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 Handle
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 Flat Base
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Example
The above figure shows an example of a rounding bottom chart pattern. I selected this one to show you an example
of what the bump looks like that sometimes appears near the midpoint of the turn. The bump begins at
C and rises to A, which is taller than usual. Then price
drops back to near the launch price, B, before resuming the rounding turn.
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