The Rounded bottom pattern, also called the "Saucer", refers to reversal patterns. It is a quite rare pattern but it gives a fairly accurate signal about the end of the current trend. Its unusual shape makes it almost impossible to miss. The main thing is to enter the trade on time.
Rounded Bottom Formation
When the strength of the bears in the market begins to weaken, the price gradually slows down the rate of decline and then gradually begins to move up. It forms a “U” shape on the chart.
As a rule, the price changes its direction rather abruptly and forms a “V” shaped spike. However, with low volatility, the transition might be quite smooth. This is how the Saucer appears although this doesn’t happen too often.
How to Trade the Rounded Bottom
The Saucer is formed on a downtrend. If you notice that the market is slowly starting to change direction, you can mark a horizontal neckline. It will become your resistance level.
As soon as the price crosses the neckline, you get your buy signal. Wait until the end of the formation of a candlestick that has broken through the resistance line, and open a long trade.
Let's take a look at the chart.
Rounded Bottom Figure
- Bearish trend
- Rounded bottom
- Resistance level - neckline
- Signal to open a buy trade
- Place your Stop Loss under the neckline. If the pattern doesn’t work out and the market continues to decline, it is better to close the position and not wait for a reversal. It's too risky.
- Take Profit should be set above the neckline at a distance equal to the depth of your Rounded bottom.
Rounded Top
Our pattern also works on an uptrend. It forms a Rounded top or Inverse saucer on the chart. Everything works the same here, but in the opposite direction:
- Wait for the uptrend to slow down and gradually turn into a downtrend.
- At the beginning of the Inverse saucer formation, draw a horizontal neckline - the support level.
- Once the breakout candlestick formation is over, open a sell trade.
- Set the exit points following the example of the Rounded bottom.
How to Use Volumes
Volumes will help you catch the Saucer while it is still forming. As the price approaches the top or bottom of the pattern, volume will decline. This means that the strength of the leading side is weakening and the trend might reverse. When the bottom or top of the Saucer is formed, the volumes will gradually increase.
Wait for an impulse with increased volumes:
- On the Rounded bottom the momentum will be upward. Wait for the next candle to close. If its highs exceed the highs of the previous candlestick, you can open a buy trade.
- The Rounded top finishes forming with a downside momentum with increased volumes. If the low of the next candle is below the previous candlestick, open a sell trade.
The chance of meeting the Saucer on the chart is pretty low. But now you know what to do if you stumble upon it.