#Technical analysis is a key tool for traders looking to predict price movements in the crypto market. Among the many graphical models, a figure called the "rounded bottom" stands out. This formation indicates a possible reversal of the downward trend, which makes it especially important for those looking for moments to buy assets. In this article, we will analyze how to recognize a rounded bottom on a chart, what it means, what signals confirm its formation, and how it can be used to make a profit.

What is a round bottom?

A rounded bottom is a technical figure that forms on the price chart in the form of a smooth "bowl". It signals a gradual transition from a downward trend to an upward one. This model is a reversal one, that is, its formation indicates the end of the price decline and the possible beginning of growth.

Peculiarities:

  • Gradual price reduction at the beginning.

  • The consolidation stage, when the price reaches a minimum and fluctuates in a narrow range.

  • A gradual rise that mirrors the previous decline.

The rounded bottom is most often found on long-term timeframes (daily, weekly charts), but it can also be found on smaller timeframes.

What does a rounded bottom look like on a chart?

Visually, the figure resembles the letter "U" or a bowl. The price falls, slows down, reaches a minimum, stabilizes and begins to rise.

Example:

Let's imagine that the price of Bitcoin falls from $50,000 to $30,000. After a long decline, it reaches a minimum of $28,000, where it consolidates. Then the price starts to gradually rise and returns to the $50,000 mark. This whole process forms a round shape on the chart.

Stages of forming a rounded bottom

  1. Downward trend
    At the beginning of the figure, a decrease in price is observed. This is due to the dominant bearish sentiment in the market.

  2. Stabilization phase
    When the price reaches the minimum, it stops falling. Trading volume decreases, the market becomes less active.

  3. Transition to growth
    After a period of consolidation, trading volumes begin to increase. The price begins to rise, breaking through resistance levels.

  4. Reversal confirmation
    The final confirmation of the pattern occurs when the price breaks through the resistance level located at the level where the fall began.

What does a rounded bottom mean for a trader?

For a trader, a rounded bottom is a signal of a possible end to a downward trend and the beginning of a new growth cycle. If the figure is formed on high timeframes, this may indicate long-term bullish prospects for the asset.

Forecasts:

  • After breaking through a resistance level, the price often rises to the next important level.

  • The growth can be either rapid or gradual, depending on the trading volume and the overall market situation.

How to trade using rounded bottom?

Trading based on the rounded bottom pattern involves several stages:

  1. Search for a figure
    Identify an asset whose price has been declining for a long time. The chart should show smooth changes in price movement.

  2. Figure confirmation
    Wait for confirmation of the bottom formation. This could be:

    • Increase in trading volumes.

    • Breakthrough of resistance level.

  3. Entering a position
    One of the most popular entry methods is to buy after a resistance level is broken. An alternative option is to enter at the stabilization stage, but it is more risky.

  4. Setting a stop loss
    It is recommended to place a stop loss below the minimum level to minimize losses in case of an incorrect forecast.

  5. Profit taking
    Target levels depend on previous resistance zones.

Advantages and disadvantages of the figure

Advantages:

  1. High reliability
    The rounded bottom pattern is considered one of the most reliable reversal patterns.

  2. Long-term prospects
    The formation of the figure takes a significant amount of time, which allows traders to better assess the situation.

  3. Ease of identification
    On high timeframes, the rounded bottom is easy to spot even for novice traders.

Flaws:

  1. Duration of formation
    The model can be formed over several weeks or months.

  2. Ambiguity
    On low timeframes, a rounded bottom can be a false signal.

Examples of a Rounded Bottom in the Crypto Market

  1. Bitcoin in 2020
    After the crash in March 2020 (to $4,000), Bitcoin formed a rounded bottom and began a rapid rise, reaching $20,000 by December.

  2. Broadcast in 2021
    At the beginning of the year#ETH showed a decline, reached a minimum of $1,500, and then rose to $4,000 within a few months.

As the Glassnode analyst noted, "A rounded bottom is not only a reversal signal, but also an indicator of market sentiment. When traders see it, they start to act more decisively."

The rounded bottom is a powerful technical analysis tool that allows traders to predict long-term market reversals. Although it can take a considerable amount of time to form, the signal it provides is one of the most reliable.

To successfully use the pattern, it is important to consider the trading volumes that confirm the growth, as well as to monitor the overall market situation. When combined with other analysis methods, the rounded bottom can become an important part of any crypto trader's arsenal.