A less frequent, but no less useful technical formation is the rounding bottom and rounding top. They are sometimes referred to as saucers and inverted saucers, respectively. As the name implies, a rounding bottom occurs when prices gradually shift from a downtrend to an uptrend to form a short of shallow "U" shape on the charts. To validate this formation, it is important that the volume also form a saucer formation: that is, volume should gradually decline as the downtrend ends, then slowly increase as prices begin to rise again. In a bottom formation, this type of price action represents accumulation Ч the "smart money" slowly adding to long positions. At tops, this formation represents distribution, or the "smart money" getting out of long positions and adding to short ones. A common variation of saucers is for prices to rise sharply and suddenly on strong volume near the mid-point of the formation. This activity only lasts a few sessions, after which prices fall back within the rounding pattern. It is difficult to determine exactly when the pattern is complete, but a good indication occurs when volume begins to increase sharply or prices break an important area.
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Comprehension Questions1. How many prices does the dealer need to know to read the market?
2. What affects the open price?
3. What does the high near the end of the trading session show?
4. Why is the close called sentiment?
5. What do price patterns indicate?
6. Which is the most popular reversal patterns?
7. What role does volume play with Head and Shoulders patterns?
8. Compare Double Top and Rounding Top patterns.
Ex. 1. Put questions to the underlined words.
Ex. 2. Compare the reversal patterns and state their difference.
Ex. 3. Translate the dialogue from English into Russian in writing and from Russian into English orally.
Dialogue:Client: What are the prerequisites of reversal patterns?
Broker: A prerequisite for any reversal pattern is the presence of a trend. A break in the trend line usually
accompanies a reversal pattern. The lai-ger the pattern, the greater the significance. CI: When does a retest in the Right Shoudler take place? Br: A retest is always a retest of the climax whether it be a top or a bottom. CI: What are the conditions for a retest of a climax?
Br: In a trending market there must be a rally. Market has a sharp turn down. New buyers start buying. CI: And the new buyers are not enthusiastic. Br: No, they are not. Declining volume and trading range confirm that. CI: When is the retest complete?
Br: The retest is complete if the buyers falter within the 50% region of the climax retest and price turns sharply down. A retest does not require the trader to wait for a break of the previous low pivot point.