As a decline on strong volume to a new low, Rounding Bottom then describes numerous weeks of ‘light’ trading with a little progress downwards. Then, a few more weeks of light trade leads to an upward bias before strong volume takes a sharp movement upwards. Because the pattern is considered ‘meandering’, they don't normally lend well to price targets. Following a break underneath key support, the best one can hope for is a small decline reaching the longer-term support level.
In truth, this type of reversal pattern is normally used for weekly charts and can also be called a ‘saucer bottom’. Additionally, it will also turn from bearish to bullish after a long consolidation period.
Decline - With the first decline leading to the first low, this can take on a number of forms with some proving to be jagged whilst other traders look for more linear movements.
Previous Trend - Before forming the pattern, there may be times where the low can be recorded months in advance and the security trades flat. In an ideal situation though, the new low will be marked with the low of the rounding bottom. However, the low may not be the lowest when you look over a period of months.
Low - Although the pattern shouldn't be too sharp, it can resemble a ‘V’ shape at times. A lower spike can also be created by a selling climax that comes as a result of the long-term decline in prices; overall, the pattern will take a few weeks to form.
Advance - Taking around the same amount of time as the previous trend, the advance off of the lows will form the whole right side of the pattern. However, the validity of the rounding bottom will come into question if the advances are too sharp.
Volume - Ideally, volume levels will move along with the patten; for example, it would start high at the decline whilst being low at the end of the decline. With this being said, the volume levels aren't actually too important on the decline itself as long as there is an increase during the advance and breakout.
Breakout - When the pattern breaks above the reaction high, this confirms a bullish movement. As with most of the resistance breakouts, this can become support. However, the new support level varies in significance because rounding bottoms are a sign of a long-term reversal.