What is the Rounding Bottom Pattern?
The Rounding Bottom pattern is a reversal pattern that occurs after a price fall. This means that the pattern can only be identified at the end of a downtrend and the beginning of an uptrend.
The price of an asset falls and then begins to slow forming a range pattern which then slowly transits to a price rise. This will lead to the formation of a Round bottom of the candlesticks between the falling price, the slowing price, and the rising price.
If a volume indicator is used, it will display the same formation as if the round bottom of the price curves into the volume indicator. It will display higher volumes as the price is falling, lower volumes as the price slows and higher volumes as the price starts to rise.
Any time frame is fit for this pattern to form. Realize however that you need to be patient waiting for this pattern to form because it might take time.
Trading Using the Rounding Bottom Pattern in Olymp Trade.
Follow these quick steps to trade using the rounding bottom pattern;
1. Identify the Rounding Bottom Pattern.
Look for a price fall that gradually shifts to a price range or slowing and then a price rise. Confirm with the volume indicator that higher volumes have been recorded during the price fall, lower volumes recorded during the price range, and higher volumes during the price rise.
2. Identify the Round Bottom Neck Line.
Identifying a Neck Line is simple. Draw a line across the top of the bearish trend and the bullish trend before the breakout. The purpose of this line is to identify when breakout has occurred.
3. Identify a Round Bottom Breakout.
Remember you drew a neckline whose purpose was to identify when a breakout has occurred. Now, wait for the price to break the Neck Line as it trends upwards. This is a sign of price strength which should also be displayed by the volume indicator as a volume increase.
4. Enter a Buy Position.
You have keenly observed as the price broke out of the Neckline. The essence of all that was to enter a Buy position as the price showed strength upwards.
5. Adjusting the Stop loss.
In essence, the stop loss should be placed at the midpoint of the Round bottom pattern. However, realize that breakouts have the potential of being false, and reverses in prices may mess you up. Therefore, you need to place your stop loss just below the low of the breakout candlestick – If the breakout fails you can quickly exit the trade.
6. Adjusting the Take Profit.
The minimum profit target is equal to the pattern size from the point of breakout. To identify the size of the Round bottom pattern, take the distance from the Neckline and the lowest point of the pattern. That is the distance of the Rounding Bottom pattern.
Now that you have the size of the Rounding Bottom pattern, place your Take Profit the same distance from the point the breakout occurred.
A quite profitable pattern to apply in your trading. Note that Adjustment of Stop Loss and Take Profit applies to those trading on Olymp Trade MetaTrader 4. Here, the size of the Rounding bottom is measured in terms of price. Stop losses and Take Profit are also in terms of price.
If you are trading the Olymp Trade Fixed Time Trades, measure the size of the Rounding Bottom in terms of time to know when the trade should end. Adjust the time to the exact size of the Rounding bottom and enter the trade once a breakout occurs.