Starting with a rally to a new high on strong volume, Rounding Top then sees light trade for numerous weeks. During this time, there is little upside progress before another section of time filled with light trading resulting in a downward bias. Finally, the pattern is finished with a sharp move lower on strong volume. Generally, rounding tops don’t lend well to price targets unlike head & shoulders because of the meandering pattern. After a break below the key support, a small decline back to the support level can be expected.
Even though the turn is extremely slow, the rounded top shape suggests that the perception of the market is changing.
Normally, a climactic level of volume will signal that the market is coming towards the end of the uptrend. Despite this, the news will still be positive which attracts buyers; the market will then consolidate any recent gains.
As the consolidation unfolds, the volume will quickly reduce and this is one of the biggest problems. Due to the lack of profit taking, the lack of volume suggests that the uptrend is still healthy.
As the market advances, the high volume is now absent. As the price moves sideways, the volume becomes lighter and during the advances, the volume increases. Regardless of the movement, the volume will steadily decrease.
Often, a mirrored arc can be seen for the volume; as the price hits a high point, the volume reflects this and reaches a low point.
Eventually, the market will peak and the struggle will commence. As the trend line is broken with heavy volume, the rounding top pattern is complete and the shape will be seen.