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Rounding tops are mediocre performers except for downward breakouts in a bull market. Even so,
the break even failure rate is quite high and the average decline is just about average. Upward breakouts have a poor
average rise but the failure rate is acceptable. For more information see pages 608 to 623 of the book
Encyclopedia of Chart Patterns, Second Edition
and the following...
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 Rounding top chart pattern
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Important Bull Market Results
Overall performance rank for up/down breakouts (1 is best): 13 out of
23; 5 out of 21
Break even failure rate for up/down breakouts: 9%; 12%
Average rise/decline: 37%; 19%
Throwback/pullback rate: 53%; 48%
Percentage meeting price target for up/down breakouts: 61%; 24%
Identification Guidelines
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Characteristic |
Discussion |
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Weekly or daily |
Rounding tops are large enough
to appear on the weekly or daily chart. |
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Price trend |
Upward leading to the chart
pattern. |
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Even ends |
The rims of the inverted bowl
bottom near the same price. 52% of the time the end is slightly higher than the start. |
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Rounded turn |
Prices form a gentle curve,
a half moon shape. |
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Volume |
Volume is higher at either
end of the pattern often giving volume a rounded, U-shaped, appearance. |
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Breakout |
A close above the highest
high signals an upward breakout. Downward breakouts are a close below the right rim low. |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
Compute the height from the highest peak in the pattern
(point A in the Measure Rule figure to the right) to
the right rim low (B) and then multiply it by the
above “percentage meeting price target.” Add it to the price of the
highest peak (A, upward breakouts) or subtract it from
the right rim low (B, downward breakouts) to get
a target price (C). |
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32% retrace |
For aggressive traders, if price
retraces 32% of the rounding top’s height,
buy. The Retrace figure to the right shows an example. Measure the height from
A to B and then take
32% of this. Add it to the low at B to get a target of
C. C represents the buy
price.
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Support |
The two rims are support areas. |
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Height |
Tall patterns perform better than
short ones. |
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Volume shape |
Patterns with U-shaped volume outperform. |
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Breakout volume |
Heavy breakout volume suggests better
performance. |
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Right rim |
When the right rim is above the left, the pattern
outperforms. The Retrace figure to the upper right shows an example, with the
right bottom (B) above the left
(D). |
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Yearly low |
Performs slightly better when the
breakout is within a third of the yearly low. |
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Gaps |
Breakout day gaps tend to push price
farther than do breakouts with no gaps. |
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Throwbacks and pullbacks |
Throwbacks and pullbacks hurt postbreakout
performance. |
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 The Measure Rule
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 Retrace
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Example
The above figure shows an example of a rounding top chart pattern. Price bottoms at the start,
A, climbs to the top at B, and then rounds down to
C. In this example, when price rises above the 32% retrace buy point, it signals a
purchase. That signal worked well here.
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