What is a Rounding Top?
• A rounding top is a chart pattern that graphically forms the shape of an “Inverted U”.
• This chart pattern is found at the end of an uptrend trend and signifies a reversal.
• It is also referred to as an inverted saucer.
• Ideally, volume and price will move in tandem.
Parts of a Rounding Top:
A rounding Top chart can be divided into several main areas:
• Advance
• Consolidation
• Decline
Important aspects:
1. Prior Trend: There must be a prior uptrend before the formation of the top. The stock may trade flat before forming the pattern.
2. Advance: The first portion of the rounding top is the advance that leads to the high of the pattern. This rise can take on different forms: some are quite jagged with a number of reaction highs and lows, while others trade in a more linear fashion.
3. High: The high of the rounding top can resemble an “Inverted V” top, but should not be too sharp . Because prices are in an uptrend, the possibility of a buying climax and upthrust exists that could create a higher spike.
4. Decline: The decline from the highs forms the right half of the pattern and should take about the same amount of time as the prior advance.
5. Breakdown: Bearish confirmation comes when the pattern breaks down from the reaction lows and ultimately, the neckline.
6. Volume: In an ideal pattern, volume levels will track the shape of an inverted rounding top: high at the beginning of the advance, low at the end of the advance/consolidation, and rising during the decline.
Exhibit:
Important links:
- Follow the free Telegram channel for early updates.
- Bullish flag chart pattern
- Rounding bottom chart pattern
