What is a Saucer
A saucer is a technical charting pattern that forms when a security’s price has reached a low and begins trending upward.
BREAKING DOWN Saucer
Saucers are commonly formed at a security’s support trendline. They occur when a stock declines to a low and then begins trending upward. This price action forms a saucer shape. Volume throughout the pattern’s formation can be important to watch since it will typically be lower when the trough of the pattern is reached.
Traders can use a variety of different channels to chart resistance and support trendlines around a security’s price. Envelope channel patterns are fluid formations that can help to follow a security’s price over long periods of time. A Bollinger Band channel is one of the most common envelope channels used. This channel draws resistance and support trendlines two standard deviations above and below the moving average. Various other envelope channels with differing methodologies for charting trendlines also exist including Keltner Channels and Donchian Channels.
Traders seeking tighter resistance and support trendlines may also draw channels at the peaks and troughs of a security’s price over a certain timeframe. These channels will be either ascending, descending or sideways depending on the security’s price trend.
Saucer Trading Signals
Both envelope channels and standard trading channels are important patterns for a trader when seeking to identify and place profitable trades from a saucer formation. A saucer will typically form at the support trendline. It may occur from a selloff with high volume that pushes the price down to its lowest level. Often this low price level will be in the support zone, which is an area around the support trendline. In the support zone there is often a great deal of price uncertainty. The support zone is known for serving as the security’s floor and therefore it is anticipated that the price will not fall below that level. However, trading mechanisms, supply and demand all factor into the security’s price and can cause the price to continue trending lower below the support level. Volume can often be an important indicator at this point since it is highly influenced by the pricing sentiment of investors.
If the price does not trend lower and begins an uptrend then a saucer occurs. This is the most anticipated movement and follows traditional investing methodology. Typically, traders will want to buy the security or buy call options on the security at its lowest price in order to obtain the greatest profit from an up trending saucer pattern.