Bulkowski’s Rounding Tops

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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...
Rounding top chart pattern
Rounding top chart pattern

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

Characteristic Discussion
Weekly or daily Rounding tops are large enough to appear on the weekly or daily chart.
Price trend Upward leading to the chart pattern.
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.
Rounded turn Prices form a gentle curve, a half moon shape.
Volume Volume is higher at either end of the pattern often giving volume a rounded, U-shaped, appearance.
Breakout A close above the highest high signals an upward breakout. Downward breakouts are a close below the right rim low.

Trading Tips

Trading Tactic Explanation

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).
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.
Support The two rims are support areas.

Height

Tall patterns perform better than short ones.

Volume shape

Patterns with U-shaped volume outperform.

Breakout volume

Heavy breakout volume suggests better performance.
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).

Yearly low

Performs slightly better when the breakout is within a third of the yearly low.

Gaps

Breakout day gaps tend to push price farther than do breakouts with no gaps.
Throwbacks and pullbacks Throwbacks and pullbacks hurt postbreakout performance.
Rounding top measure rule
The Measure Rule
Rounding top retrace
Retrace

Example

Rounding top chart pattern 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.

Copyright © 2005-2007 by Thomas N. Bulkowski. All rights reserved. The gene pool could use a little chlorine.