The Simple Moving Average + Rounding Bottom: A Hidden Combo for Next-Level Trading

The Secret Sauce Most Traders Ignore

If you’ve been relying solely on standard technical indicators and your results are as inconsistent as a Wi-Fi signal in an elevator, it’s time to uncover an overlooked gem: the combination of the Simple Moving Average (SMA) and the Rounding Bottom. This powerful duo can help you pinpoint trend reversals before the herd catches on.

But before we dive in, let’s address the elephant in the room: why do most traders ignore the Rounding Bottom pattern? Well, because patience is in short supply. Most traders treat the market like a slot machine, pulling the lever repeatedly instead of waiting for high-probability setups. But what if I told you that waiting for the right moment—like a sniper, not a spray-and-pray trader—could significantly improve your win rate?

Let’s break it down.

What’s the Deal with the Simple Moving Average?

The Simple Moving Average (SMA) is one of the most well-known indicators in Forex. But while everyone and their grandma knows about the 50, 100, and 200 SMAs, few truly understand how to use them in unconventional ways.

Here’s what most traders do wrong:

• They assume the SMA is only useful for trend direction (which is basic-level thinking).
• They enter trades just because the price crosses an SMA (which is like buying stocks because Elon Musk tweets about them).
• They ignore context, failing to combine SMA with actual price patterns.

So, how do you use SMA the right way? You pair it with the Rounding Bottom.

The Rounding Bottom: The Market’s Best-Kept Secret

The Rounding Bottom pattern is a slow-forming but extremely reliable reversal pattern. It often appears at the end of a long downtrend, signaling a potential major trend shift.

Key Characteristics of a Rounding Bottom:

✅ Price gradually declines before stabilizing.

✅ A smooth, curved bottom forms (like a bowl or, let’s be real, a well-cooked pancake).

✅ Volume typically declines at the bottom, then starts increasing as price moves up.

✅ Once price breaks resistance, a new uptrend is confirmed.

Now, combine this with an SMA crossover, and you get a powerful trade confirmation setup.

The Perfect Setup: SMA + Rounding Bottom Strategy

This setup is so simple it should be illegal (but lucky for us, it’s not).

Step 1: Identify the Rounding Bottom

• Switch to the 4H or daily chart.
• Look for a price that has been declining gradually over weeks or months.
• Wait for a rounded, bowl-like formation at the bottom.
• Confirm that volume has dropped at the lowest point.

Step 2: Watch for SMA Confirmation

• Use the 50-SMA and 200-SMA.
• Wait for the 50-SMA to cross above the 200-SMA (golden cross).
• If the rounding bottom is near a major support level, your setup is even stronger.

Step 3: Enter the Trade at the Right Moment

• Don’t jump in early! Wait for the price to break above the resistance zone of the rounding bottom.
• Look for high volume confirmation.
• Place your stop-loss below the lowest point of the pattern.

Step 4: Manage the Trade Like a Pro

• Set your first target at the next resistance zone.
• Move your stop-loss to breakeven once price moves in your favor.
• Trail your stop-loss with the 50-SMA to ride the trend.

Real-World Example: The 2023 GBP/USD Reversal

A great example of this setup occurred in early 2023 on GBP/USD. The pair had been in a downtrend for months, forming a clean rounding bottom on the daily chart.

• The 50-SMA crossed above the 200-SMA right as GBP/USD broke its resistance zone.
• Volume spiked, confirming bullish momentum.
• Traders who entered at the breakout rode the trend 400+ pips upward.

Common Mistakes to Avoid

1️⃣ Jumping in too early – The market loves to fake out impatient traders. Wait for a clean breakout before entering.

2️⃣ Ignoring volume – Low volume means weak momentum. No volume = No conviction.

3️⃣ Not using a stop-loss – If you don’t have a stop-loss, you’re not trading. You’re gambling.

4️⃣ Misreading the pattern – If the bottom looks sharp instead of smooth, it’s not a true rounding bottom. Stay picky.

Final Thoughts: Why This Strategy Works

✔️ The SMA helps confirm trend shifts and eliminates false signals.

✔️ The Rounding Bottom filters out bad trades by requiring patience.

✔️ The breakout strategy ensures you enter at the right time instead of chasing price.

✔️ Combining price action, volume, and SMA crossovers gives you an unfair advantage over 90% of traders.

If you’re tired of getting whipsawed by false breakouts, this tried-and-true combination is a game-changer.

Key Takeaways

✅ The Rounding Bottom is a high-probability reversal pattern when used correctly.

✅ The 50-SMA and 200-SMA golden cross confirms the new trend.

✅ Waiting for volume confirmation improves win rates.

✅ Entry timing matters! Only enter after the breakout.

✅ Stop-loss and trade management are key to long-term profitability.

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Image Credits: Cover image at the top is AI-generated