ASX Charting Course

Chapter 10

Rounded Tops & Bottoms

Rounded Top

As the name implies this pattern appears as a gentle reversal to the trend, rather than a violent change in trend. It takes time to form and is characterised by diminishing higher highs eventually giving way to increasingly lower highs.

A rounded top signals the end of a bull market and suggests a reversal in trend. It’s difficult to identify until it has actually formed and is therefore favoured by longer term trend followers. Once it has formed however, it marks a significant level from which we can start a whole new series of calculations and projections.

In the example below, the top is well formed before it becomes obvious, but the potential for he down move to continue is high once we have identified the rounded top.

Rounded Bottom

A rounded bottom is the result of gentle change in trend. It’s quite subtle while its happening and really only obvious once complete. The actually bar that creates the low is not all that significant in this pattern, however the price is very important. The bars on the left of the actual bottom will be progressively and gradually making lower lows with less difference, while the bars on the right of the bottom will reverse that and make slightly higher lows at first and then get more dramatic as we move further away from the low.

There’s not a lot one can do with a rounded bottom, except use it as confirmation of a low and therefore a major reference point. A rounded bottom formation is however important because it is a major signal for trend change.