The U-shaped bottom is a rounding bottom, also called a “saucer. ” The dip is rounded with a flat bottom. But we’ll see in many cases there are several bearish peaks, but they do not question the validity of that pattern.
The neckline of the pattern is assembled by the highest point before the formation of the U.
Here is a graphical illustration of a rounding bottom:
There is no theoretical target price. Some authors will measure the depth of the U and then report it on the neckline like a double bottom. It is not a good suggestion to apply this method, actually the target is then reached in only 36% of the cases. The theoretical objective that is suggested, is to measure the depth of the U then divide by 2, to postpone this height on the neckline.
The rounding bottom reversal pattern has been lengthily considered. Consider the work that T. Bulkowski demonstrates that in a lot of cases the rounding bottom is a continuation pattern. When the neckline is broken, the results are quite good.
Here are some statistics about the rounding bottom:
– In 62% of cases, there will be a bullish reversal.
– In 86% of cases, the exit is upward.
– In 57% of cases, the target advised for this pattern will be reached .
– In 40% of cases, a pullback will occur on the neckline.
– In 95% of cases, there is a pursuit of the bullish movement after the breakout of the neckline.
The price will often make a break when the price gets back on the neckline.
The more the dip becomes flat, the more the movement at the breakout of the neckline will be strong.
If there is a pullback on the neckline after the breakout, the upward movement will be then less powerful.
If a significant upward spike occurs after the formation of the bottom, it is possible to draw a downward line to connect the high point prior to the formation of the rounding bottom and the highest of the bullish peak.