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Written by and copyright © 2005-2010 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition  ,
pictured on the right, pages 595 to 607. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
Rounding bottoms are chart patterns that are difficult to spot unless you look on the weekly
scale. The break even performance rank is small and the average rise is large, so they show good performance.
Be careful midway through the turn since price sometimes shoots up only to drop back down.
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 Rounding bottom chart pattern
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Important Bull Market Results
Overall performance rank (1 is best): 5 out of 23
Break even failure rate: 5%
Average rise: 43%
Throwback rate: 40%
Percentage meeting price target: 57%
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Identification Guidelines
| Characteristic | Discussion |
| Weekly or daily | The pattern appears on either the daily or weekly chart. Concentrate on finding them on the weekly scale because the rounded nature is more apparent. |
| Price trend | Price trends upward to the pattern 62% of the time. |
| Shape | Look for a rounded bowl shape, usually over many months and usually after an upward price trend. |
| Bump | Price may shoot up midway through the turn, near the bottom, but price usually retraces most (not all) of the way back to where it
started. The Bump figure to the right shows an example as does the figure at the bottom of this page. |
| Volume | The volume pattern mimics the price action – a curving trend, appearing most often as a dome (51%, U-shaped: 43%, random shape: 6%). The trend
is upward 51% of the time. |
| Confirmation | The pattern confirms when price closes above the highest peak the pattern, either the left or right saucer lip (if it has one). |
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Bump
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Trading Tips
Consult the associated figure on the right.
| Trading Tactic | Explanation |
| Measure rule | Compute the height from the right saucer lip to the lowest
valley in the pattern then multiply it by the above “percentage meeting price
target.” Add the difference to the right saucer lip to get a price target. If
the saucer doesn’t have a right lip then use the left rim. The Measure Rule
figure to the right uses the left lip (A) to the
lowest valley (B) as the height. |
| Swingers | Swing traders can sell if price bumps up midway through the rounding turn. Buy back in once price retraces back to near the price at which the bump started.
Price usually re-enters the rounding turn higher than the launch price. |
| Pause | Price often pauses at the price level of the left saucer lip. |
| Handle | If the turn forms a handle at the right saucer lip, draw a
trendline from the left lip to the right and extended downward beyond the handle.
Buy when price closes above the trendline. The Handle figure to the right shows
this situation. The red line is the trendline
connecting the left rim to the right rim and extended downward. |
| Flat base | A flat base (predominantly
flat over several months) leading to the rounding turn often leads to a powerful
rally. The Flat Base figure to the right shows an example. |
| Yearly high | Patterns that breakout within a third of the yearly high perform best. |
| Throwbacks | Throwbacks hurt post breakout performance. |
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The Measure Rule
Handle
Flat Base
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Examples
The above figure shows an example of a rounding bottom chart pattern. I selected this one to show you an example
of what the bump looks like that sometimes appears near the midpoint of the turn. The bump begins at
C and rises to A, which is taller than usual. Then price
drops back to near the launch price, B, before resuming the rounding turn.
This is another example, and a more recent one, of a rounding turn. The bump up begins near the middle of the rounding turn and
ends near the same price at which it took off.
This example shows Steelcase (SCS) on the daily scale. The chart is a bit compressed vertically, so the turn is not as rounded as it looks on my computer screen.
This chart is an excellent example of the mid-turn bump-up in price. I show that circled in green beginning from the launch price of
A to B. Notice that B almost makes it back down to A
before the uptrend resumes.
Other Examples
-- Thomas Bulkowski
Copyright © 2005-2010 by Thomas N. Bulkowski. All rights reserved. Forget about world peace. Visualize using your turn signal.
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