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What is a Rounding Bottom Formation?

What is a Rounding Bottom Formation?
Asked by
Mark Michaels categorie-icon time-icon2 months ago

Mark Michaels
Answered time-icon2 months ago

A rounding bottom is a reversal chart formation which usually takes shape after a bearish trend. It is characterized by a series of price changes that graphically resemble the shape of a “U” letter. See sample here.

The pattern is typically found at the end of prolonged downtrend and indicate a reversal in long-term price developments. The pattern is not something traders seen very often, and usually takes few weeks to few months to form.

An increase in volume is important because it’s a confirmation of the pattern. At the start of the pattern the volume is high and should decline as the price falls. Once the price takes the opposite direction and starts rising, volume will increase too.

An entry signal is given once the price breaks out above the resistance and a peak takes shape marking a start of the pattern. This means that the declining trend is reversing and an uptrend should begin.

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