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Rounding Bottom, Rounding Top

ROUNDING TOPS and ROUNDING BOTTOMS can seem to take forever before resolving. That’s the bad news. The good news is that so much time spent basing can make it very difficult to stop the reversal once it gets underway.

  1. Breakout

 

 

 

The pattern is simple to identify, long after it has begun to form. Both price action and volume clearly “round” into and out of the ultimate extreme. This rounding pattern is most obvious in the shape of volume, which increases sharply into the reversal if the reversal is valid and sustainable.

ROUNDING TOPS tend to fully develop and resolve much faster than ROUNDING BOTTOMS. In either case, the first attempt to reverse the trend – no matter how steep – will reverse back towards the base before a more sustainable leg of the recovery begins.