In this video we'll talk about how to trade rounding tops and rounding bottoms so a rounding top as
I'm sure you can imagine is at the top of a move higher.
Now rounding bottom is at the bottom of a move lower takes a little bit of artistic license to identify
these patterns but as a general rule and basically when in the case of a rounded rounding top when the
market does this no rounding bottom like this at the bottom of a downtrend at the top of an uptrend.
So think about what this means.
This means that the market has taken its time.
In the case of a rounding top we've rallied for a while.
We've run into some resistance but it's not it's more like a lack of momentum.
Perhaps the overall attitude of the market starting to change maybe some fundamentals have changed or
there's just a simple lack of enthusiasm for a stock and that forms over time.
This rounded top one just kind of lose interest thing with a rounding bottom been selling off selling
off and then just gradually the selling pressure abates and we reach towards the upside.
So when trading these things you take the height of the pattern
you draw an imaginary line down here and then on a break of what would be the next line for lack of
a better term or you know the bottom of the pattern or top of the pattern if it's rounding bottom you
take the measurement of the height of the actual pattern itself and extrapolate the breakout.
So for example this was two dollars tall.
Once we break through this level you're aiming for another two dollars your stop loss goes about halfway
into the pattern quite frankly because if you get a breakdown in the break back up into it then it's
not really sticking and it's just more kind of back and forth so a rounding top can be identified.
As such you can see that clearly the market has just tried to rally and this just couldn't hang on to
it.
And there's your pattern.
The height is from twenty seven to twenty nine fifty
so that would be two dollars and fifty cents from the breakdown from twenty seven.
So you're looking for 20 for 50 and that is exactly where you end up.
You do get a little bit of a pullback and you do get another chance to enter based upon this previous
support.
So sometimes you get that opportunity as well if you miss it.
Rounding bottom you can see that Yum Brands took its time just kind of pulled back and then just kind
of went like this for several months from about sixty two to sixty six gives you a target of 70 which
we do hit rather quickly.
The nice thing about these patterns is they take a long time to set up so you keep your eye on him for
quite some time.
Also something else that I would point out is the longer the time that it takes to form the pattern
the more impressive it will be because it takes a lot more order flow to make these moves in this case
here.
This would have been about two and a half months over here and the one in Microsoft about the same maybe
three months.