What is a saucer?
A saucer, also called a rounded bottom, refers to a technical chart pattern that indicates a possible reversal in the price of a security. It is formed when the price of that security has reached a minimum and begins to trend upward.
- A saucer, or rounded bottom, is a chart pattern used in technical analysis and is identified by a series of price movements that graphically form the shape of a “U”.
- Both envelope channels and standard trading channels are important patterns for a trader when looking to identify and place profitable trades from a saucer formation.
- Typically, traders will want to buy the security or buy call options on the security at its lowest price to get the most benefit from an uptrending saucer pattern.
Cymbals are usually formed at the support levels of a security, whether they are trend lines, channels, or any other measure that defines the supply / demand ratio of that security. They occur when a financial instrument falls to a low and then begins to trend upward. This price action results in a “U” shaped chart pattern and is generally very rounded with a flat bottom.
Rounded bottoms are at the end of extended downtrends and signify a reversal in long-term price movements. The time frame for this pattern can range from several weeks to several months and is considered rare by many traders. Ideally, volume and price will move together, where volume confirms price action.
Some key elements for cymbal patterns include:
- There must be a prior price trend, in this case downward.
- The fall in price should make a low, initiate a consolidation phase that shifts momentum from bearish to bullish, before reversing course and breaking above the neckline.
- The saucer neckline can be identified by the price point just before the rounding pattern begins to form, and is validated when the price reverses through that point.
- Volume can be an important indicator of possible saucer formation as it will typically be less when the minimum of the pattern is reached.
- Although there is no theoretical price target for the higher move, some technicians have recommended that you can take the depth of the U, divide it by two, and add it to the neckline.
Traders can use a variety of different channels to chart resistance and support trend lines around the price of a security. Engulfing channel patterns are fluid formations that can help track the price of a security for long periods of time. A Bollinger band channel is one of the most widely used envelope channels. This channel draws trend lines of resistance and support two standard deviations above and below the moving average. There are also several other surround channels with different methodologies for plotting trend lines, including Keltner channels and Donchian channels.
Traders looking for tighter resistance and support trend lines can also draw channels at the peaks and troughs of a security’s price over a set period of time. These channels will be ascending, descending or lateral, according to the trend of the price of the security.
Saucer Trading Signals
Both envelope channels and standard trading channels are important patterns for a trader when looking to identify and place profitable trades from a saucer formation. Typically, a saucer will form at the support trend line. It can occur from a sell off with a large volume that pushes the price to its lowest level. Often times this low price level will be in the support zone, which is an area around the support trend line.
In the support zone, there is often great price uncertainty. The support zone is known to serve as the bottom of the value and therefore it is anticipated that the price will not fall below that level. However, the trading mechanisms, supply and demand influence the price of the security and can cause the price to continue to trend down below the support level. Volume can often be an important indicator at this point as it is heavily influenced by investor price sentiment.
If the price is not trending down and an uptrend begins, then a saucer occurs. This is the most anticipated move and follows the traditional investment methodology. Typically, traders will want to buy the security or buy call options on the security at its lowest price to reap the benefits of a saucer pattern.