A rounding top is a chart pattern which is identified by price movements that when graphed form the shape of an upside down "U"
In classic chart patterns, we will be discussing Rounding Top and Rounding Bottom pattern.
A rounding top is a chart pattern which is identified by price movements that when graphed form the shape of an upside down "U". It is form at the end of an extended upward trend and will often indicate a reversal in the long-term price movement while Rounding Bottom serves as the opposite of a rounding top which signals a reversal as well which would lead to a bullish future outlook for the security.
a) Rounding Top :
In a rounding top the security’s price will increase to a new high and then steadily decreases from a resistance level to form the rounding top.
Volumes will usually be the highest when the price is increasing and may experience another high on the downtrend during the selloff phase.
The pattern can develop over several weeks, months or even years, and is considered a rare occurrence by many traders. This pattern represents a bearish future outlook for the security.
b) Rounding Bottom:
In a rounding bottom the price begins with a decreasing price trend until it reaches a support point. Once reaching the support point, the price will begin to trend higher. A trend line following the price’s lows will form a U shape.
This pattern can also be followed by another rounding bottom forming a double bottom if the price resists a bullish trend. In a rounding bottom it is expected to result in a reversal and traders seek to take long positions at the support level to profit from future gains.
(The Author is Derivatives & Technical Analyst at Motilal Oswal.)
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