List of Financial Market Terms

Rounding Bottom patterns are identified by a series of price movements that resembles a "U".  They're found at the end of extended downward trends and predict a reversal in long-term price movements. These formations are utilized in futures trading, options trading, and stock trading. 

RB's are classified as a reversal pattern. The difference in the peaks (A) and the trough (B) is generally the minimum the stock will rise from the A line. This pattern's time frame can vary from several weeks to several months and is deemed by many traders as a rare occurrence.

Here's a Rounding Bottom we found in the live Trading Room in SIRI:

rounded bottom in SIRI stock

As you can see, it's not perfect. Towards the end of the Rounding Bottom there was some volatile downward price action that pierced through the bottom of the pattern.  This happens on occasion, and it's rare that you ever see an absolutely perfect pattern. 

Take that volatile action (likely news related) out of the equation and you can see we have a solid example of a Rounded Bottom.  The downtrend reversed, and the stock began trending higher.

Related terms: Double Top, Double Bottom, Wedge, Rounding Top

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