What Is a Rounding Bottom?

A rounding bottom is a chart pattern that's used in technical analysis. It's identified by a series of price movements that graphically form the shape of a "U". Rounding bottoms are found at the end of extended downward trends and signify a reversal in long-term price movements.

This pattern's time frame can vary from several weeks to several months and many traders consider it to be a rare occurrence. Volume and price will ideally move in tandem and volume confirms the price action.

How a Rounding Bottom Works

A rounding bottom looks similar to the cup and handle pattern but it doesn't experience the temporary downward trend of the "handle" portion.

The initial declining slope of a rounding bottom indicates an excess of supply that forces the stock price down. The transfer to an upward trend occurs when buyers enter ✨the market at a low price. This increases dem💫and for the stock. The stock breaks out and will continue in its new upward trend when the rounding bottom is complete.

Rounding Bottom Chart Example

The rounding bottom chart pattern is also known as a saucer bottom because of the visual resemblance and bowl-like appearance. The recovery period may take months or years to coalesce, much like the downturn. Investors sho💙uld therefore be aware of the patience that may be potentially necessary to realize a full recovery in stock price.

Parts of a Rounding Bottom Chart

A rounding bottom chart💝 can be divided into several main areas🐼.

First, the prior trend shows the buildup to the stock's initial descent toward its low. The trading volume would be the heaviest at the start of the decline and would then decrease as the share price levels off and approaches the bottom of the pattern formation.

Volume increases when investors buy shares again as the stock recovers and moves to complete the pattern. The rounding bottom breaks out of🦩 its low point when the stock price closes above the price immediately before the start of the initial decline.

The trading volume in a rounding bottom chart pattern ideally follows and confirms the direction of the stock price but it's not necessary to have perfect volume price correlation. Trading volumes are often at their lowest point when the share price also reaches its bottom. The volume of shares traded usually peaks at the beginning of the decline and when the stock reaches🎉 its previous high with building volumes on the approach.

The Bottom Line

Many traders consider the rounding bottom chart pattern to be a rare occurrence. It indicates a positive market reversal and can track and confirm how a stock's price is moving. As with any indicator, you might want to use it in tandem with other tools for the best possible results.