Rounded Bottom Pattern

Although it is not is not a commonly seen pattern, a rounded bottom is a highly reliable bullish reversal pattern. It is found in down trending stocks and the lack of candlestick spikes is what gives it the 'rounded' look.

As rounded bottoms occur at the end of a downtrend they normally take more than a long time (up to months) to form. By drawing a curved line that connects the stock price lows, upward sloping sides will form the cup 'look' of this pattern. The minor highs before and after the low can be connected with a horizontal trend line which acts as resistance. Any upside break of this trend is a 'buy' signal, any increase in volume will add weight to the pattern.

Volume will generally follow the price pattern. Therefore, as the rounded bottom begins to form the volume will decrease as the bearish mood becomes less decisive. Following a period of low volume at the bottom of the bowl, the price will start to turn up and as sentiment turns bullish the volume will increase.

As these patterns will sometimes reach very low prices which provide a lot of upside potential traders like to try and see them before they have fully formed and buy at the lowest possible price. However, even text-book rounded bottoms patterns can fail.