Sell-at-top Technical Pattern – Rounding Top

I. What is a Rounding Top pattern?

A Rounding Top pattern is formed when prices begin to slow down and the trading volume shrinks, and then stop rising. As this occurs, prices keep going lower and lower after a period of sideways at the top. This makes the formation look like the shape of a dome or rounded hill as shown in the figure:

II. The technical characteristics of the Rounding Top

1. It may appear at the end of the upward trends, or in the downward trends.

1. The price initially rises faster. As the price continues to rise, traders become less and less enthusiastic to participate, and every time the price rises, it starts to fall down not much higher than the previous high, and the fall is not dynamic.

1. Then the strength of the rise and adjustment became increasingly weaker, gradually the new high becoming lower than the previous high. By connecting the short-term highs, a circular arc is formed. In the end, more and more traders start to leave the market and the price accelerates down.

1. The volume of a Rounding Top is not as regular as a Rounding Bottom, sometimes the volume candlestick will also present a top arc shape.

III. Technical meaning of a Rounding Top

A Rounding Top is a more reliable signal of a reversal than a Rounding Bottom. It is because that the stock price rising needs to be driven by capital. While the price falling requires nothing as long as no one is buying.

The trend after a Rounding Top is different from a Rounding Bottom. After the Rounding Top is partly formed, it predicts a steep downward momentum. After the Rounding Top is totally formed, the price will not immediately fall, but will remain a lateral consolidation. The lateral consolidation area is called bowl handle.

But even so, the technical meaning of a bearish Rounding Top remains unchanged, and almost all of the bowl handles area will break down soon.

IV. The application of the Rounding Top

1. In trading practice, when prices break down through the neckline, it is an important sell-at-top signal which means buyers need to sell stocks and leave the market. We call a straight line that crosses the minor lows the most, the Neckline, as shown in the figure below.

1. Let’s combine the BTC market conditions and illustrate the application of the Rounding Top pattern in trading.

The above chart is a daily chart of BTC. During 2021-10-1 to 2021-12-5, after a relatively steep rise, the strength of the buyer has weakened, and the upward trend tends to be stable, while the seller’s strength increased. At this point the forces of both the buyer and seller are evenly matched and goes sideways. After the second impact did not break the previous high, the prices began to slowly fall back to form a dome. With a wave of severe plunge, the prices broke through the Neckline, thus stopping the downward trend. In the year-long decline, the range of a price drop was up to 70% plus.

1. The specific buying and selling applications of the Rounding Top signal in trading.
   a. When the price falls through the Neckline, the first selling point is generated. These selling points are relatively aggressive and have a relatively low success rate.

a. When the price falls below the Neckline, but the rebound high does not break the Neckline, and there are bearish signals such as downward engulfment and evening star, the second selling point is generated, this kind of selling point belongs to the robust selling point, the success rate is obviously increased.

1. The longer the formation of the Rounding Top, often the longer the downtrend, the greater the decline!

1. Just as there are cases where a Rounding Bottom fails to be constructed, there are also cases where a Rounding Top fails to be formed.

1. When the prices falls below the Neckline of the Rounding Top soon after it rises again to the top of the Neckline, breaking the Neckline fails and the Rounding Top fails to be formed. At this point, you can hold your position and continue to wait and see, and then decide whether to leave the market in combination with the trend indicators.

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Summary

Rounding tops are more common in real trading and require special attention to the following two points in the transaction:

1. As Rounding Bottom does, the Rounding Top sometimes also cannot draw the Neckline. Traders must combine with other trend technical analysis tools to predict the market.

2. Rounding Top’s breakout of Neckline requires no minimum trading volume. Whether the volume is released or not, it does not affect the validity of the breakout.

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Disclaimer

This is for your reference only. The information provided by Gate.io above is not investment advice and is not responsible for any investment you may make. The information regarding technical analysis, market judgments, trading tips, and trader sharing may involve potential risks, investment variables, and uncertainties, and this issue does not provide or imply any opportunity for guaranteed returns.