What is a rounding top?

A rounding top chart pattern is a bullish chart pattern. It will occur after a large uptrend. Eventually the stock will start t weaken and fall. This should make a round (bridge like) top. When the stock has fallen a good amount it will most likely reverse and start heading higher again.

In this pattern the stock started forming a top at around $23.50. Once it hit $16.50 it started coming up again and forming an uptrend.

When the stock starts to turn around and make a circular shape towards the downside it signals that the uptrend is weakening and that the bears are taking control. However when the stock breaks resistance to the upside it shows that the uptrend is not yet dead and that the bulls are starting to take back control of the equity.

volume

You should see a spike in volume when the stock starts forming an uptrend again. It is very important to see large volume when the stock starts making an uptrend.

trading the pattern

Some professional traders may decide to short the pattern when the top is formed. These traders should be prepared for any trend reversal that may occur. Other traders may choose to buy once the stock starts turning into an uptrend again.

Other Chart Patterns

There are other chart patterns that you can use to tell if a stock will continue its trend or reverse. Here are a few other patterns to look into.

Head and shoulders - This pattern typically forms at the top or bottom of a major trend and signals a reversal is coming.

Dead Cat Bounce - This is the idea that a stock which has just taken a massive dive will bounce back up for a day or two before it settles off.

Bearish Pennant - A signal indicating continued weakness in a down trending stock.