Recognizing the Rounding Bottom Pattern in Forex Trading – A reversal pattern is a pattern of predictable price movements or gives a strong signal when a change in market direction will occur. There are three market directions, namely up (Bullish), down (Bearish), and flat (Sideways). If currently the market is Bullish and then a reversal pattern appears, the implication is that the market direction will change to Bearish or Sideways.
The big mistake of traders is usually to immediately make predictions that the market will be Bearish. Many criteria can be used to test the validity of this reversal pattern. In trading, Reversal patterns such as Double Top, Double Bottom, or Head and Sholder are often used as a guide to finding out when the price will reverse. Apart from the previous three patterns, there is one other pattern that can also detect Reversal well, namely the Rounding Bottom price pattern.
Rounding Bottom Pattern
The Rounding Bottom pattern is a formation of candlestick bars that can indicate the potential for price to reverse, as in general, the Reversal price pattern. The visual of the Rounding Bottom price pattern looks like a bowl or curve of a circle. This arch is formed in a relatively long time. The higher the Timeframe, the longer the trader has to wait for the Reversal price to form.
The placement of the Neckline boundary is relatively subjective. In general, the Neckline is placed near the highest price or Swing High at the beginning of the curve. The closer the Neckline is to the base of the curve, the sooner the Buy signal on the Breakout will appear and the less risk it will have. But unfortunately, the earnings and profit targets are decreasing.
What Do You Know About the Rounding Bottom Pattern in Forex Trading?
The curved shape makes the Rounding Bottom price pattern almost resembles the Cup & Handle price pattern. The difference lies in the handle only. The Cup & Handle price pattern will be corrected at the end of the curve and then form a channel and followed by an upward or downward breakout price.
Whereas the Rounding Bottom section did not find the Handle because it was not corrected at the end of the curve. The price will only move up through the Neckline. The Rounding Bottom pattern has another variation, namely the Rounding Top Pattern. If the Rounding Bottom pattern indicates an upward trend reversal, the Rounding Top has a downward indication.
Trading Strategy with a Rounding Bottom Pattern
The Rounding Bottom price pattern is relatively rare in normal conditions. Besides taking a long time, this reversal price pattern also often turns into other similar price patterns such as Head and Shoulder or Cup and Handle. Nevertheless, traders can still get practical benefits from this Rounding Bottom trading signal.
In conclusion, the Rounding Bottom price pattern can be used as an alternative to potential price patterns to be monitored on the chart. Where previously this monitoring could be done by Double Top, Double Bottom, or Head and Shoulder patterns only.