Dear traders,
We are all individuals striving to carve our own paths in
the financial markets with a passion for achieving financial freedom. The
markets not only offer us opportunities for profit but also allow us to take
determined steps towards this freedom. However, every step requires patience,
discipline, and courage. In financial trading, we constantly seek new ways to
predict price movements, and one of the most well-known of these methods is
technical analysis. Technical analysis provides us with a broad perspective on
market movements and helps us always stay one step ahead in our trading. Chart
patterns are one of the most valuable tools in technical analysis. These
patterns reflect the emotions of market participants and contain clues about
the future. One such pattern is the Rounding Top Saucer pattern. In this
article, we will try to explain what the Rounding Top pattern is, how it forms,
and how it can be used in forex trading in a way that you can easily
understand.
What is the Rounding Top Saucer Pattern?
In short, the Rounding Top Saucer pattern is a reversal pattern that indicates the end of a bullish trend. In other words, this pattern
emerges at the end of an uptrend, signaling that the market may be about to
change direction. When the pattern forms, the change in market psychology and
the signal of an impending downtrend can be understood. The Rounding Top Saucer
pattern provides us with the opportunity to detect trend reversals early and
take advantage of these reversals. The name of the Rounding Top Saucer pattern
comes from the shape it forms on the chart. This pattern involves prices
gradually rising over an extended period, reaching a peak, and then slowly
reversing direction. That is, prices first create a slow uptrend, reach a peak,
and then start to decline slowly in a similar manner. This process usually
forms a rounded saucer-like shape on the chart. The structure resembles an
inverted saucer or bowl, which is why it is called the "Rounding Top"
pattern.
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| The Rounding Top Pattern |
Note: The Rounding Top Saucer pattern is the opposite of the
Rounding Bottom Saucer pattern, which we use in financial trading. Both the
Rounding Top Saucer pattern and the Rounding Bottom Saucer pattern are widely
encountered and broadly applicable chart patterns in financial trading. These
two patterns are essentially the inverse of each other. The Rounding Top
pattern occurs after an uptrend and signals that the market may begin to
decline. This pattern forms as prices step by step retreat after reaching a peak,
offering a selling opportunity. On the other hand, the Rounding Bottom pattern
usually forms after a downtrend and is suggestive of a market reversal to the
upside. This pattern emerges as prices gradually rise from a low point,
providing an excellent buying opportunity. So, both patterns create a similar
rounded structure on the chart, but their trend directions and the
opportunities they present to traders are completely opposite.
How Does the Rounding Top Pattern Form?
The Rounding Top pattern initially begins with an upward
curve and little by little takes on the shape of an inverted saucer or dish. Then,
price movements slowly trend downward, creating a rounded structure on the
price chart. This process indicates a substantial psychological shift among
market participants, showing that buyers are incrementally losing their initial
enthusiasm and optimism. At the beginning of an uptrend, participants usually
have hope and confidence that the market will continue to rise. However, when
prices reach a peak and then show a gradual decline, it signals that this
optimism is waning and traders' willingness to buy is weakening. At this stage,
it is observed that buyers in the market are becoming increasingly cautious and
new buying activity is diminishing. The Rounding Top pattern usually develops
over an extended period and includes the following main features:
Rounded Top: The Rounded Top is part of the Rounding Top
Saucer pattern, and it forms as prices rise along a curved path over a period
of time. This movement usually represents a gradual increase and forms the peak
of the pattern. Prices do not rise quickly, instead, they increase slowly and
steadily. When prices reach a certain point, the rate of the rise slows down,
and price movements begin to flatten out. Then, prices start to decline in a
rounded manner, making the rounded top easily noticeable.
Symmetrical Structure: The symmetrical structure forms as
prices start to decline in a curved manner after reaching the peak. Just as the
ascent to the peak is gradual on the left side of the pattern, the decline on
the right side is typically slow and steady. Prices fall along a curved path
from the peak, resulting in a symmetrical shape in the price movement. In other
words, just as the ascent was slow and curved, the decline is similarly slow
and curved. This results in the pattern often having a symmetrical structure.
Neckline: The neckline is a line that connects the lowest
levels reached by prices after the peak in the Rounding Top pattern. This line
can be horizontal or slightly sloped and represents the lower boundary of the
pattern. When prices decline, this line often acts as a support level,
attempting to prevent further decreases. If prices fall below this line, the
pattern is considered complete, and the possibility of a market decline
increases.
These features of the Rounding Top pattern improve its
readability. Therefore, trend followers closely monitor the completion of the
pattern. This is because the completion of the pattern and the breaking of the
neckline indicate that the market has begun to enter a bearish trend. This
situation can present attractive opportunities for identifying optimal selling
points.
How to Use the Rounding Top Pattern in Trading?
The Rounding Top pattern is one of the chart patterns that
signals the end of a bullish trend and the possible beginning of a bearish trend
in the market. Trading based on the Rounding Top pattern offers us major
advantages in better predicting market movements and making forward-looking
decisions. This pattern is an effective tool for identifying trend reversals in
the markets and allows market observers to analyze current trends. Accurate
identification and analysis of the Rounding Top pattern provide trend followers
with the opportunity to recognize expected downtrends at an early stage.
One of the most critical elements of the Rounding Top
pattern is the breaking of the neckline, which is eagerly anticipated as a sign
of a trend reversal. With this breakdown,
the bullish trend gives way to a bearish trend. The breaking of the neckline is
considered the most common sell signal in the Rounding Top pattern. Sometimes,
prices experience a brief decline as they break below this line, then may
return to test the breakdown level. After breaking below the neckline, prices
may test this line once or even twice. This retracement is called a
"pullback," and touching the neckline is referred to as a
"retest." Both pullbacks and retests generally signal a stronger
bearish trend. A sell order can also be executed if the price remains below the
neckline after breaking it, creating one or more full candlesticks under this
line. This helps confirm that the breakdown is genuine and not a false breakdown.
- Sell: A sell order is usually placed upon the break of the support level known as the neckline of the pattern.
- Stop Loss: In the Rounding Top pattern, the stop loss order is often placed just above the neckline or slightly above the highest point of the pattern, depending on market volatility.
- Target: The target is usually set based on the expected decline equivalent to the height of the pattern (the distance between the peak and the neckline).
Below is a trading example based on the Rounding Top pattern
on the 1-hour chart of the Euro/New Zealand Dollar (EUR/NZD). This pattern,
which appeared at the end of an uptrend, led to a downtrend. After the neckline
was broken, prices showed a brief decline and then retraced to retest.
Following this retracement, the downtrend continued strongly. This trading
example clearly demonstrates once again that the Rounding Top pattern is a
reversal pattern.
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| Rounding Top in EUR/NZD 1H Chart |
Similarly, another example can be observed on the hourly
chart of the Canadian Dollar/Japanese Yen (CAD/JPY). In this chart, the
formation of the Rounding Top pattern has been carefully monitored. The
pattern, which occurred after a bullish trend, provided a signal of a market
reversal. After the neckline was broken, a short-term retracement was observed,
during which the accuracy and strength of the pattern became even more
apparent. Afterwards, prices clearly entered a bearish trend. This example is a
valuable case showing how the Rounding Top pattern can be effective under
different market conditions and how it can identify trend reversals.
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| CAD/JPY Bearish Trend After Rounding Top Pattern |
Please be mindful that: Trading in the Forex market always
involves risk. Like other technical analysis tools, the Rounding Top pattern
may not be sufficient on its own. Therefore, it is crucial to validate and
evaluate it alongside fundamental analysis. Please trade with only an amount of
your capital that you can afford to lose, and make sure not to neglect the use
of stop loss orders. Wishing you successful trades.
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