“Round Bottom” patterns are also called “saucers” and they form at the market bottoms. “Round bottoms” form after a prolonged down-trend, slow and gradual markets. “Round bottoms” are relatively reliable patterns and are easy to spot (in curve form) at the bottom and have weak volume markets. “Round bottom” trading is similar to a “rectangle” pattern trading and they may be better visible in higher time-frames. A trend line is drawn connecting the “swing highs” of the “round bottom” pattern to initiate the trades at the trend line breakout levels. “Round bottom” patterns with a long base may provide more profitable trades.
Trade: A trend line is drawn connecting previous “swing highs” prior to the “Round bottom.” Price trading above the trend line signals a breakout and a “long” trade. Enter a “long” trade above the high of the breakout bar from the trend line.
Target: Two potential trade targets are possible in “Round bottom” patterns. The first target is the depth of the “Round bottom” pattern from the breakout level. The second target is the previous “major swing highs”.
Stop: The “Round bottom” pattern trade is based on the trend line breakout. Pattern failure can occur if the market closes below the trend line for a series of bars. Place a “stop” order below the trend line to protect the trade.
Trading Round Bottom Pattern
Trading Round Bottom Pattern
The example above illustrates a “Round bottom” pattern from the Russell 2000 Emini (ER2) futures 610 tick chart. On January 19,2007, ER2 made a series of highs and lows to form a “Round bottom” pattern in the first hour. A trend line is drawn connecting the previous “swing high” and the “Round bottom.”
Enter a “long” trade above the high of trend line breakout bar.
Place “targets” at previous swing highs prior to the “round bottom” pattern.
Place a “stop” order below the trend line.
Trading Round Bottom Pattern
Trading Round Bottom Pattern
The example above illustrates a “Round bottom” pattern formation from the eSpeed (ESPD) weekly stock. ESPD traded in a narrow channel (from $7.50 to $10.25) range from January 2005 to April 2007. A horizontal trend line is drawn connecting the highs of the “Round bottom”. The depth of the “Round bottom” pattern is about $2.50. In April 2007, ESPD traded outside the channel and closed above recent “swing high” signaling a potential “long” trade.
- Enter a “long” trade above the high of the “swing high” at $10.75.
- Place a “stop” order below the recent “swing low” at $8.00.
- Set “targets” at patterns’ depth above the breakout level. Secondary targets may be set at previous major swing high levels.
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