What to look for in charts: Saucer

Overview:

What is a Saucer?

What are its implications?

What is a Saucer?

A saucer, also called rounding bottom, refers to a technical charting pattern that signals a potential reversal in a security’s price. It forms when that security’s price has reached a low and begins trending upward. Saucers usually form at the support levels (read previous page for more info) of securities. They occur when the price drops and goes back up again as shown by the image above. This price action results in a chart pattern in the shape of a U and is generally very rounded with a flattish bottom.

Some key requirements for saucer patterns are:

1) A prior price trend, in this case downward, must exist.

2) The decline in price should make a low, start a consolidating phase which turns momentum from bearish to bullish, before reversing course and breaking out above the neckline.

3) The saucer's neckline can be identified by the price point just before the rounding pattern starts forming, and is validated when the price reverses through that point.

4) The volume can be an important indicator of a potential saucer formation since it will, typically, be lower when the trough of the pattern is reached.

What are its Implications?

A saucer will typically form at the support trend line. It may occur from a selloff with high volume that pushes the price down to its lowest level. Often this low price level will be in the support zone, which is an area around the support trend line. If the price does not trend lower and begins an uptrend, then a saucer occurs. This is the most anticipated movement and follows traditional investing methodology. Typically, traders will want to buy the security, or buy call options, on the security at its lowest price in order to reap the benefits from a saucer pattern.