Trading Patterns 101 - The Rounding Top pattern

What is a Rounding Top?

• A rounding top is a chart pattern that graphically forms the shape of an "Inverted U".
• Rounding Tops are found at the end of an uptrend trend and signify 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.

Example:

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Happy learning. Cheers!