Takeaways

• A rounded top pattern is dome-shaped, indicating an upcoming downtrend.
• A rounded bottom pattern is a bowl-like pattern, indicating an upcoming downtrend.

What is the rounded top pattern?

A rounded top pattern is formed when the stock price climbs up gradually, consolidates for a period, and then goes down gradually, forming a dome-shaped pattern on the chart.

The pattern is confirmed when the price breaks down below its moving average. Depending on the duration of the pattern, a short, medium, or long-term moving average can be used. For example, short-duration patterns generally use a 50-day moving average.

How do you trade a rounded top pattern?

Implications

A rounded top pattern is considered a bearish signal, indicating the end of an uptrend and the start of a downtrend.

Entry

point

Investors may choose to open a short position when the pattern is complete, i.e., when the price breaks down below the moving average. Others may choose to close a long position at the breakout.

*Note: Enable ‘Technical Signals’ in ‘Alert’ to get a heads-up when a pattern is formed.

Profit target

The profit target is the difference between the highest point and the lowest point of the pattern. As the red shadow shows below, it’s estimated that the stock price may drop as low as $76.6-$76.3. Investors may place a stop order according to the target price to secure profits or stop losses.

*Note: Enable ‘Technical Signals’ in ‘Chart Toolbox’ > ’Settings’ to read automatic pattern signals in a chart.

What is a rounded bottom pattern?

A rounded bottom pattern is like a bowl. It is formed when the stock price slides gradually, consolidates for a period, and then goes up gradually.

Likewise, a rounded bottom pattern is confirmed when the price climbs above the moving average.

How do you trade a rounded bottom pattern?

Implications

A rounded bottom pattern is considered a bullish signal, indicating a possible reversal of the current downtrend to an uptrend.

Entry point

Investors may choose to open a long position when the pattern is confirmed. Others may choose to close a short position at this point.

Profit target

Just as a rounded top pattern, the profit target is the difference between the highest point and the lowest point of the pattern.

*Note: The pattern signals are not 100% accurate. Use other technical analysis methods, such as support and resistance or MA to confirm a price reversal.

What's More

-Try it out on paper trading