When you picture a trend reversal in the market, it’s common to think of a sharp reversal from a bullish to a bearish trend (or vice versa). However, trend reversals do not always occur within the same trading session. Often, the reversal may span across several days or even weeks. These trend changes are slower and give traders more time to align their strategies to changing market conditions.
Nevertheless, you need to understand how to identify such reversals in price patterns. Candlestick patterns like the rounding top can help you with this. In this article, we’ll take a closer look at the rounding top pattern, how to identify it and what it indicates.
The rounding top pattern, also known sometimes as the inverse saucer, is a bearish reversal pattern that occurs at the top of an uptrend in the market. It resembles an extended concave curve or an inverted saucer, hence its name. This pattern typically develops over several trading sessions spanning days, weeks or even months at a time.
During the trading sessions that make up the rounding top, it may appear that the market is moving sideways, with no prolonged uptrend or downtrend. This is because the market takes its time to reverse the uptrend after a consistent bullish price movement. During this phase, there are multiple minor price rises and drops, but none so prolonged as to warrant a complete trend reversal.
There are three main elements that you can look out for to identify a rounding top pattern. They include the following:
A rounding top occurs because the buying pressure from the bulls is almost equally matched by the selling pressure from the bears. So, the price of the stock exhibiting the rounding top pattern consistently rises, then dips slightly to the neckline support range before rising again to form a new high. Repetition of this price pattern leads to a resistance level from the selling pressure.
Eventually, the selling pressure may build sufficiently to break through the neckline support and start a bearish trend, confirming the trend reversal.
How you trade the rounding top pattern depends primarily on your risk profile. Typically, if you are a conservative trader who is risk-averse, you may be sceptical about whether or not the trend will reverse. So, a natural course of action for you would be to wait for a break from the sideways price movement and close your position when the price falls below the neckline support. You can then wait to test if the neckline support holds before choosing to reenter the market.
However, if you are an aggressive trader who can afford to take risks, you may want to take a short position when the price falls below the neckline support. This effectively indicates that you are fairly certain that the bearish trend will prevail. You can then set an exit target at a lower price.
The rounding top pattern may include or coincide with other extended bullish trend reversal patterns like the double top or the triple top candlestick patterns. In fact, the rounding top may have several tops of varying levels before the price finally reverses and starts to trend downward. Although these patterns all occur at the top of an uptrend, your trading strategy may need to be adapted to each pattern as needed.
This concludes the handy guide on what a rounding top pattern is and how you can plan your trades if you identify this pattern. Since the rounding top is a candlestick pattern that is formed from historical price movements, you need to be good at technical analysis to observe and interpret candlestick charts. Only then can you watch for patterns like the rounding top and formulate trading strategies as needed.
Share this article:
Share Market Today | Gifty Nifty Positive, Asian Markets Rebound
26 Jul, 2024 | 5 Min. read
Upcoming Q1 Results Today | Cipla, Power Grid, Indigo, IndusInd Bank
26 Jul, 2024 | 2 Min. read
Commodities Market Today | Crude Rises on Eased Inflation Pressures
26 Jul, 2024 | 1 Min. read
Gold Rate Today | Gold Plummets 2.3%, Silver Down 4.7%
26 Jul, 2024 | 2 Min. read
S&P Upgrades Vedanta Resources from 'CCC+' to 'B' on Improved Liquidity
26 Jul, 2024 | 2 Min. read
Mankind Pharma Acquires Bharat Serums and Vaccines for ₹13,630 Crore
26 Jul, 2024 | 2 Min. read
Indus Towers to Consider Share Buyback Proposal on July 30, 2024
26 Jul, 2024 | 2 Min. read
Income Tax Return Filing Everything You Should Know
26 Jul, 2024 | 6 Min. read
How To File ITR Online: A Comprehensive Step-by-Step Guide
26 Jul, 2024 | 7 Min. read
RVNL Secures ₹191.53 Crore Contract for South Eastern Railway Project
25 Jul, 2024 | 2 Min. read
Commodities Market Today | Oil Eases on Prospects of Middle East Ceasefire
25 Jul, 2024 | 1 Min. read
Share Market Today | Gift Nifty Declines on Negative Global Cues
25 Jul, 2024 | 4 Min. read
Analysis to Become a Pro Investor
28 Dec, 2023 | 4 Min. read
Women In Real Estate Investing (Investree)
28 Dec, 2023 | 5 Min. read
How To Check Prudent Corporate Advisory IPO Allotment Status
27 Dec, 2023 | 3 Min. read
How To Boost Credit Score? – Steps to Improve Creditworthiness
27 Dec, 2023 | 4 Min. read
Advantages and Disadvantages of Opening Multiple Demat Accounts
26 Dec, 2023 | 4 Min. read
7th CPC LTC: Leave Travel Concession Rules for Central Government Employees
26 Dec, 2023 | 4 Min. read
7th Pay Commission: House Building Advance (HBA) Interest Rate FY 2023-24
26 Dec, 2023 | 5 Min. read
The Future of Trading: Exploring Bajaj Broking’s Demat Features
26 Dec, 2023 | 6 Min. read
7th Central Pay Commission Cpc Fitment Table
23 Dec, 2023 | 7 Min. read
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading