Rounded top, also known as inverted bowl or saucer top pattern, is a bearish trend reversal chart pattern indicating the end of an existing uptrend and start of a new downtrend. It is a dome shaped formation with a fairly smooth and rounded top without any noticeable spikes. Rounded top chart pattern is a gradual market shift from bullish sentiment to bearish sentiment; thus favoring usually long-term traders.
In rounded top formation, usually the volume shows just the opposite pattern to the price; that is, when the price is rising volume tends to decrease, and when price is declining volume tends to increase. The duration of the pattern can range from some weeks to many months. Generally, the pattern is more reliable when it takes more than two months to form.
Traders can sell when the pattern is confirmed. Different traders use different methods to confirm the trend reversal. Generally, the start of a downtrend is confirmed when the price breaks below its moving average or when it breaks below the starting price of the pattern. But the reliability of the bearish signals is greatly challenged when the price breaks above its moving average instead of breaking below.
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