Rounding Bottoms (Saucers)and TopsMost patterns offer clearly definable breakout points, but rounding patternsdo not. When plotted on a chart, they look interesting, but from a practicalpoint of view they are not very useful because they are usually identifiableonly well after the fact. Figures 11-5 and 11-6 show the formation of asaucer (rounding bottom) and a rounding top. A saucer pattern occurs ata market bottom, while a rounding top develops at a market peak. A classicsaucer is constructed by drawing a circular line, which roughly approximatesan elongated or saucer-shaped letter U, under the lows. As the pricedrifts toward the low point of the saucer, investors lose interest and downwardmomentum dissipates. This lack of interest is also reflected by the levelof activity, which almost dries up at the time the price is reaching its lowpoint. As the formation is completed, both price and volume experience arapid acceleration to the upside. Occasionally they experience a sidewaystrading range at higher levels. If that happens, the breakout from this consolidationoffers a timely buy signal. Risk can be controlled by placing a stopbelow the lower level of the trading range. According to Edwards andMagee, rounding bottoms have a tendency to develop in low-cap stocks,where they take many months to complete.The price action of the rounded top (or inverted bowl, as it is sometimescalled) is exactly opposite to that of the saucer pattern, but the volume
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