Discover more from TinTinTrading’s Newsletter
🍳Saucer Base - Anatomy
Anatomy of charts. Episode 6
📖Table of contents
1. What is a Saucer Pattern? 2. How to Identify a Saucer Pattern? 3. How to trade a Saucer Pattern? 4. Statistics about Saucer Patterns? 5. Examples 6. Trading Tactics for Saucer Pattern
If you're a trader looking to identify a reliable chart pattern to trade with, look no further than the saucer base. This technical analysis pattern is also known as the saucer, the rounding bottom, or the rounded turn. It is a long-term chart pattern that signals the end of a downtrend and the start of a new uptrend.
🤷♂️What is a Saucer Base?
A saucer base is a rounded chart pattern that resembles a saucer or a bowl. It consists of a rounded bottom, followed by a breakout above the pattern's neckline. The pattern can take a long time to develop, and it may last anywhere from several months to several years.
The saucer base is a reliable continuation pattern that signals a stock is about to reverse its downtrend and start trending higher. Traders who spot the pattern early can make significant profits by getting in at the right time.
🔎How to Identify a Saucer Base?
Identifying a saucer base is relatively easy, and it consists of three main elements:
Rounded Bottom: The first element is a rounded bottom, which is a smooth curve that is similar to a bowl or a saucer. The bottom should be well-defined and symmetrical, and it should not be too shallow or too steep.
Neckline: The second element is the neckline, which is a straight line that connects the pattern's peaks. The neckline should be horizontal, and it should act as a resistance level for the stock's price.
Volume: The third element is volume, which should decline as the pattern develops and then increase as the stock price breaks out above the neckline. The volume is likely to be very "dome-like".
Handle: While a handle is not required you will most likely see a handle. The handle saucer figure is typically forming where the prior price trend finsihed.
Since it does take longer it is best to use the weekly timeframe to identify this rounding bottom pattern.
Like the Anatomy Series? Here’s are the other episodes 👇
Episode 1: Market Cycle
Episode 2: High Tight Flag
Episode 3: Flat base
Episode 4: Cup and Handle
Episode 5: Double Bottom
Episode 6: Saucer Base
Episode 7: 3 Tight Closes
Episode 8: Chart Pattern Cheat Sheet
🤑How to Trade a Saucer Base?
Trading a saucer base chart. pattern can be profitable, but it requires careful attention to detail and a proactive trading strategy. Here are some key steps to follow:
Wait for the Breakout: The first step is to wait for the stock price to break out above the neckline. The breakout should be accompanied by high trading volume, and it should signal a significant shift in the stock's price trend.
Set a Stop Loss: The second step is to set a stop loss to limit your losses if the trade does not go as planned. The stop loss should be set below the neckline, and it should be adjusted as the stock price rises.
Set a Price Target: The third step is to set a price target for your trade. The price target should be calculated by measuring the pattern's height and adding it to the neckline. This will give you a theoretical price objective for the trade.
Look for Confirmation: The fourth step is to look for confirmation from other technical analysis indicators. Traders should look for trading signals from other indicators such as moving averages, trend lines, and envelope channels.
Monitor the Trade: The final step is to monitor the trade closely and adjust the stop loss and price target as needed. Traders should be proactive in their trading strategy and seek tighter resistance levels to maximize profits.
🤓Statistics about Saucer Bases
Saucer bases are a reliable continuation pattern that signals a stock is about to reverse its downtrend and start trending higher. Here are some key statistics about saucer bases from analysing over 450 Saucer Bases:
Continuation pattern: This flat bottom pattern acts more often as continuation to the long term price movements than a reversal pattern.
Average Rise: If the saucer pattern breaks out then the average price rise in a bull market is 43% and in bear market is 31%.
Days to ultimate high: In a bull market it takes about 189 days to reach the ultimate high in the pattern, where as in bear market it takes only 105 days
Throwbacks: Throwback rate is rather low compared to the other pattern bases that we are covering in the series. It is only 40% and 43% in bull and bear market respectively.
Height: Tall patterns perform better than short ones, especially in a bull market (52% versus 38%).
Width: Wide patterns performed better than narrow ones in both bull and bear markets, with the best performance coming from saucer bases in a bull market (48% average rise versus 38%).
Formation length: Rounding bottom turns in a bull market are wider (three times as wide) than those in a bear market, suggesting that the bear market had more violent swings that cut a rounding turn short.
Height and Width combination: Tall and narrow saucer bases in a bull market performed better than other combinations, despite the fact that tall and wide patterns that do well individually should have outperformed.
Volume trend: Saucer bases with a rising volume trend performed marginally better than those with a falling volume trend, but the numbers are so close that it is not a significant factor to consider.
Volume shape: The dome shape is the most common volume trend, with U-shaped volume trends occurring only 51% of the time. Saucer bases with U-shaped volume perform slightly better than dome-shaped ones. Random shapes have too few samples to take seriously (10 in bull markets and 18 in bear markets).
Breakout volume: When breakout volume was above the 30-day average in a bull market, saucer bases tended to outperform. In a bear market, a slight performance edge went to saucer bases with light breakout volume.
Saucer patterns occur at least 3 times in any long-term trending stock.
The saucer pattern is a continuation pattern that occurs after an extended downward trend.
Saucer patterns appear in both up and down trending markets.
The saucer bottom appears after extended downward trends or after a strong security's price trend.
The pattern can be a reversal pattern, but it is more often a continuation pattern.
A saucer base can be a rounding pattern that starts forming after a long term price movement.
The neck line is the most critical part of the pattern, as the theoretical price objective is calculated by measuring from the neck line to the saucer's lowest point.
The pattern can be identified using standard trading channels or various other envelope channels, with the most common envelope channels being the 10% and 20% levels.
Traders can use technical analysis to find saucer trading signals, which can help them develop a proactive trading strategy.
Saucer bases have a higher failure rate in choppy markets or when price uncertainty is high.
By understanding the statistics of saucer bases, traders can better evaluate when to use this pattern as part of their traditional investing methodology.
The saucer pattern's time frame is best to be daily or weekly. It is a bullish signal that typically form profitable trades. Below are a few examples of a successful breakout of the pattern that has all key elements.
JPM 0.00%↑ 53 week Saucer Base (weekly chart)
Jack Eckerd (weekly chart) - 62 week saucer base
Now that you have learned about saucer bases, it's time to discuss some trading tactics you can use when encountering this chart pattern. Here are some tips:
Confirm the pattern: Before trading, make sure the saucer base pattern is confirmed, ideally by a breakout above the saucer's right lip. This helps to increase the chances of success when trading the pattern. Use the Template in this article to help you out.
Measure Rule: Saucer bases typically offer a price target that can be calculated using the Measure Rule. To calculate the price target, subtract the lowest low in the saucer from the right saucer lip. Add the height to the value of the right saucer lip to get the target price. When the stock breaks out it from a saucer bottom t reaches this price target 57% of the time in Bull market and 53% in Bearish market.
Look for the Handle: Saucer bases usually form a handle, which is a price consolidation area that commonly forms immediately after the right saucer lip. Look for the handle, and wait for the breakout above the handle's high (or right cup lip).
Identify Tighter Resistance: Traders seeking tighter resistance can look for an envelope channel (using a moving average envelope) that is closely aligned with the saucer's upper lip, providing a more conservative entry level.
Use Stop Losses: Utilizing stop-loss orders can help to minimize potential losses, especially in cases where the pattern fails to confirm or the price breaks down.
Wait for the breakout: The ideal buy point is when th stock breaks out from the handle. As with the other bases in the series we want to see volume backed breakout with at least 30-40% above the average 50 D SMA volume.
Developing a proactive trading strategy can be very useful when dealing with saucer bases. This involves looking for signals that indicate a continuation or reversal of the pattern, such as upward or downward price breaks.
By incorporating these tactics, traders can increase their chances of success when trading saucer bases. Remember to always do your due diligence and make informed trading decisions based on sound analysis and risk management practices.
📝Key takeaways for trading tactics when it comes to saucer bases:
Trade tall patterns and avoid short patterns, as tall patterns have a higher success rate.
Trade wide patterns and avoid narrow ones, especially in a bull market.
Look for tall and narrow saucer bases in a bull market, as they tend to perform the best.
Monitor the volume trend, as saucer bases with a rising volume trend perform marginally better than those with a falling volume trend.
Pay attention to breakout volume, as saucer bases tend to outperform when breakout volume is above the 30-day average in a bull market. In a bear market, saucer bases with light breakout volume tend to perform slightly better.