Study the rounding top as a defined sequence of swings, then record both confirmed and failed exits with the same rules.
Identify the swings and the boundary
A rounding top changes gradually from rising swings through a broad crest into falling swings. It has no necessary three-peak symmetry. A prior reaction level provides a reference boundary, while the rounded silhouette describes the transition rather than an exact formula.
Read the formation in its preceding trend
The conventional reversal case follows an advance. A mild flattening can precede either renewed strength or a decline. Record the first visible lower highs and the selected support boundary; do not label the entire crest as obvious before those observations existed.
Use an explicit confirmation rule
The worked example requires a close below the left rim at 60. The distance to the crest is used only for a geometric projection. A lower high near the crest is a developing observation, while losing the rim is the stated confirmation.
| Measure | Value |
|---|---|
| Confirmation session (first bar is session 1) | 57 |
| Boundary | 60.00 |
| Confirming close | 59.00 |
| Formation extreme | 76.00 |
| Formation height | 16.00 |
| Geometric objective | 44.00 |
Height = |76.00 − 60.00| = 16.00
Objective = 60.00 − 16.00 = 44.00The objective illustrates a measuring convention. It supplies no probability, expected return or evidence that a trade reaches that price. Keep the projected level separate from the actual chart observations and from a written risk plan.
Compare volume on the same daily basis
Compare each swing and the confirming session with this stock’s own daily volume. Quiet activity around a base and expansion on an exit are conventional context, but they do not establish direction or identify who traded. An event can dominate a single volume bar.
| Measure | Value |
|---|---|
| Confirmation volume | 220.00 |
| 20-session average including confirmation | 105.80 |
| Relative volume | 2.08× |
Including the current session in the average differs from dividing by the prior 20 sessions. An intraday comparison at the same clock time uses another denominator. State which one you use before comparing examples.
An exit that does not persist
The alternative path breaks the rim, regains it and rises above the crest. That recovery defeats the downward case. A slow change in direction does not make the subsequent trend permanent.
Distinguish nearby formations
An inverse cup and handle includes a distinct short upward pause after returning to its rim. A head and shoulders has a higher central peak between lower shoulders. A double top has two separate comparable peaks.
Keep a reproducible research record
Apply the same swing definition and boundary rule to every chart in a sample. Formations become visible as later bars confirm swings, so preserve the date on which each observation was knowable.
- Record the preceding trend, candle interval, price scale and corporate-action basis.
- Label the swings and write a boundary rule before viewing the later path.
- Record the confirming close, subsequent retest and the price that invalidates the premise.
- Compare volume on a named denominator and retain failed exits as well as resolving examples.
- Review earnings and other events, execution costs and gap risk separately from the geometric drawing.
These formations are studied by reading charts. A list of stocks near a high or low does not identify this pattern.
Sources
- Edwards, Magee and Bassetti, Technical Analysis of Stock Trends, 11th edition: reversal formations and measurement conventions
Read our data and methodology notes for calculation context. This guide explains research tools and observations. It does not recommend a trade or investment.