The rounding top pattern is a reverse U-shape, also called a “reverse saucer. ” The top is rounded with a flat top. But as you’ll see in many cases there are several bullish peaks and they will not put in question the validity of the pattern.
The neckline of the pattern is constructed by the lowest point before the formation of the reverse U. A rounding top can be a bullish continuation pattern but also a downward continuation pattern.
A graphical representation of a rounding top is indicated below:
The rounding top has been discussed as a reversal pattern. But the work of T. Bulkowski indicates that in many cases the rounding top is a continuation pattern. Take a look at the graphical representation of a reversal rounding top.
– In 81% of cases, there will be a bullish continuation pattern.
– In 61% of cases, the exit is upward.
– In 70% of cases, the target advised for this pattern will be reached.
– In 48% of cases, a pullback occurs on the neckline.
– In 90% of cases, there is a search of the bullish movement after the breakout of the neckline.
The more the top is flat, the more movement there is at the breakout of the neckline.
Provided that there is a pullback on the neckline after the breakout, the downward movement will be less powerful.
If a significant downward spike occurs after the formation of the top, it is plausible to draw an upward line to connect the low point prior to the formation of the rounding top and the lowest of the bearish peak.