Rounding bottoms
Rounding bottoms and saucers are synonyms. This pattern, that’s supposedly trend reversal is so plagued by “surprise” failures that we hardly may call them “bottoms” at all. More usually, these formations appear during uptrends as a pullback, after which the trend resumes.
Bottom Shape: The bodies on the downtrend candle get smaller and then a bottom is formed (no fresh lows). Then a breakout happens with a tiny rally that holds above the breaking level. Forming higher lows. A potential pattern of higher highs and higher lows emerges.
Confirmation: The second breakout to new highs, confirms the new leg.
How to trade it: Buy the first or the second breakout, after the small pullback. The second one is safer.
Rounding tops:
Yet another false pattern. Thomas Bulkowski writes about this pattern: “When is a top not a top? When it is a rounding top and prices break out upward 53% of the time. I like to refer to this pattern not as a rounding top, but as a rounding turn (RdT).”
Appearance: After a rally has lost steam, comes a pullback that erases most of it. The last local bottom holds. A rally move process up again.
Confirmation: Prices break the resistance of a confirmation line drawn at the high of the rounded formation.
How to trade it: I see it as a reactive leg in an uptrend, thus, if a new leg is confirmed by breaking a trend line drawn on the highs of the pullback segment, then a buy may be entered at a breakout of recent highs. Taking the breakout of the confirmation line is too risky because we still don’t know if it will repeat the previous pullback forming a sideways channel, therefore, it’s better to wait for another pullback past the breakout of the confirmation line. See Fig. 13 for clarification.
Join us
Take your trading to the next level with our 14 Day, No Obligation, Free Trial. You will soon discover why we are trading’s best-kept secret. We are successfully building the world’s largest group of profitable traders and would like you to be part of it.
You can join for as little as $19.99 per month, no contract, cancel anytime. Just one profitable trade each month covers this amount, the rest is pure profit. You will benefit from unparalleled access to our professional traders, our transparent trading performance, our LiveTradeRooms and access to the most comprehensive trading education on the market. What have you got to lose? JUST CLICK HERE TO GET STARTED NOW and see how real money is made!
Featured image by Ma. Alejandra, courtesy of https://unsplash.com