Tutorial | Trade Rounding Bottom

This article will be focused on a well known chart pattern, the Rounding Bottom. It is not a common pattern, though when identified it can give excellent trading signals due to its long creation

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Illustration

Round Bottom is a chart pattern that is created when price creates a slow, curly bottom. It is identified by the very slow loss of momentum and slow gain of momentum to the opposite direction. This is also what makes the pattern very strong - while in the V-Bottom the pattern is created instantly, and did not absorb all the buying power, the Rounding Bottom is created slowly, allowing many buyers to join the strong, steady uptrend. This is a big pattern that evolves slowly.

Examples

Note that the price is not perfectly rounding to make the Chart Pattern - instead, it retraces back and forth, creating the shape of the round bottom.

Do not demand your charts to look perfectly round because these patterns will show up rarely. Instead, focus on the general attributes of the pattern:

1. Retracements back and forth - touching Bollinger Middle Band and reversing.
2. Big movement of price, slowly losing momentum and beginning to reverse.

Trading
There are several trades we can base on the Round Bottom:

1. Conservative Trader: After the neckline is broken, we can enter an Conservative trade at the breakout itself.
2. Conservative Trader: After the neckline is broken, we can enter an Conservative trade at the pullback to the neckline. This is a stronger signal with precise Stop Loss point.
3. Aggressive Trader: Aggressive Trader will attempt to catch the Round Bottom from its very bottom. Once the trader spots half of the Rounding Bottom and identified the slow reversal, he enters at the very bottom of the pattern - after Japanese candlestick confirmation. This is slightly riskier approach but it can lead to doubled profits, as the trader doesn't wait for breakout but predicts the continuation of the pattern and attempts to catch the move from its very beginning. Note that until the neckline is broken this could evolve into a Double Bottom, so in case price stops on the neckline - liquidate position.
4. Advanced Entry - This one is only for advanced traders. Once you have spotted a Rounding Bottom and it passed its middle point, identify its main direction. Then, wait for Bollinger Middle Band (20-period SMA) to become trendy (with high slope) and wait for price to retrace to the Middle Band. Enter position in the direction of the Rounding Bottom. This is an extremely strong trading signal with high win percentage. Trade this signal only after you have gained experience in trading, as this signals requires a good understanding of trade timing.

Examples of Trades