They are technical chart formations that indicate if the stock’s price has reached its low and that the downtrend has come to a close. When it is graphed, it forms a U Shape. As the name suggests, they resemble the silhouette of shallow dishes or saucers.
How does it work?
While some chart patterns scare investors out with fast, sharp corrections, saucers have the distinction of wearing investors out. So if you see a potential saucer forming, patience can be a virtue. Saucers can be as short as seven weeks. But some can form over several months or even be as long as a year or more. After a prior uptrend of at least 20% or 30%, a stock will slowly drift lower, then trade almost sideways before finally forming the right side of the base. Saucer bases tend to correct no more than 12% to 20% in an up trending market. Some, however, can be as much as 30% or more in down markets.
- There must be a prior downtrend to reverse.
- It represents a long consolidation period that turns from a bearish bias to a bullish bias.
- Volume levels usually follow the shape of the rounding bottom: high at the beginning of the decline, low at the end of the decline and strengthening during the rise.
- It is not confirmed until there is a breakout to the upside above the resistance level, which is the beginning of the decline at the start of the pattern.