Page 190 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 6: Technical Analysis

7. Rounding Bottom: A rounding bottom, also referred to as a saucer bottom, is a long-term Notes
reversal pattern that signals a shift from a downward trend to an upward trend. This
pattern is traditionally thought to last anywhere from several months to several years.
Figure 6.13

A rounding bottom chart pattern looks similar to a cup and handle pattern but without the
handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as
the handle in the cup and handle, make it a difficult pattern to trade.
8. Gaps: A gap in a chart is an empty space between a trading period and the following
trading period. This occurs when there is a large difference in prices between two sequential
trading periods.
9. Triple Tops and Bottoms: Triple tops and triple bottoms are another type of reversal chart
pattern in chart analysis. These are not as prevalent in charts as head and shoulders and
double tops and bottoms, but they act in a similar fashion. These two chart patterns are
formed when the price movement tests a level of support or resistance three times and is
unable to break through; this signals a reversal of the prior trend.

Figure 6.14

Confusion can form with triple tops and bottoms during the formation of the pattern
because they can look similar to other chart patterns. After the first two support/resistance
tests are formed in the price movement, the pattern will look like a double top or bottom,
which could lead a chartist to enter a reversal position too soon.

LOVELY PROFESSIONAL UNIVERSITY 185