How To Spot & Trade The Rounding Top
- Posted by TheArmoTrader
- on June 16th, 2011
The market opened up flat today. After a dump on the Philly Fed numbers, the market was quickly bid right back up and heading into lunch looked like a positive day for the bulls. However around 1 EST the market felt toppy. Besides weak price action, I noticed the market was forming a rounding top.
So how did I notice this? Well it’s quite simple. We stopped making new highs and started drifting sideways. Once we started making new lower highs in the upper part of the day’s range, the rounding top then became apparent. At 01:09 EST I tweeted:
At 01:35, I tweeted this chart. The Rounding Top pattern was set and the market was ready to sell-off.
And the market did just that. Sold-off into the last hour where it bounced hard into the close. So how do you find targets for the Rounding top? While this is probably not the exact mathematical technical way to calculate a measured moved target of this pattern, all I did was I got the highest price of the upper range (127.97) and subtract it by the lowest price seen in that same range (127.30). I then subtracted that difference (67 cents) from the lowest part (127.30) and that got me to 126.63. This is a basic simple calculation I use all the time for a lot of patterns. It is easy and doesn’t require complicated calculations.
While the MM target did not catch the exact bottom, it came 31 cents close. Not bad considering the SPY bounced really hard after that. Use this pattern and the ability to determine targets from it to help you in your trading.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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