Identification: A rounding bottom is a chart pattern used in technical analysis identified by price movements that forms the shape of the bottom of a saucer.
Occurrence: It is identified by daily price movements, in particular the bottom, which when graphed, form an upward sloping curve. It occurs at the end of a previous downward trend. This pattern’s time frame can vary from several weeks to several months. Hence its confirmation is a rare occurence.
Study: Technical analysis of price information suggests that a rounding bottom may form at the end of an extended downward trend and that this price pattern may indicate a reversal in the long-term price movement. The initial declining slope of a rounding bottom indicates an excess of supply, which forces the stock price down. The transfer to an upward trend occurs when buyers enter the market at a low price, which increases demand for the stock. Once the rounding bottom is complete, the stock breaks out and will continue in its new upward trend. The rounding bottom chart pattern is an indication of a positive market reversal.