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A rounding top pattern, also known as a rounded top pattern, is a technical analysis tool used by crypto traders to identify a potential trend reversal.

It’s often said that traders should cut their losers early and let their winners run. While traders may want to let their crypto winners run, an overt focus on 

 and not taking profits off the table can be dangerous when momentum turns against you and the sentiment of a particular coin or token suddenly becomes 

To gain a sense of when it’s time to consider closing your existing position, one bearish reversal pattern you may want to consider is the rounding top pattern.

By interpreting the warning signs early and grasping the formation of an upcoming inverted U-shaped top, traders with knowledge of such 

–related patterns can easily establish a short position early or close off a long position before the rounding top pattern fully plays out.

Interested in learning how you can lock in your profits early before a sudden downtrend reversal? In the following guide, we’ll consider how crypto traders can learn to notice early formation of the rounding top chart pattern and set take-profit levels.

A rounding top pattern, also known as a rounded top pattern, is a technical analysis tool used by crypto traders to identify a potential trend reversal. The chart pattern looks like an inverted U, and is formed when an asset’s price increases gradually, peaks and then dips again.

Ask any active trader and they’ll tell you it's important to be aware of bearish reversal pattern formations, as it can help with setting rough 

 levels and guarantee profits before an inevitable downswing in price movement. The rounding top pattern typically occurs as the crypto market shifts from 

 leans toward the bearish side. To take advantage of the sudden shift, traders with charting and technical analysis backgrounds may want to 

 based on these shifts. The plan may be crafted with the intention of either 

Before proceeding to make trades based on the rounding top pattern, it’s key to first study the formation and eventual emergence of this charting pattern. An often relied-upon trend reversal pattern that may indicate an explosive breakout in a bearish direction, the rounding top can easily be spotted, thanks to a sudden downward trend that occurs as the result of a gradual appreciation in price. 

Regardless of whether the sudden trend change is based on news or is moving off of technicals, this sudden movement represents a change in trader sentiment and expectations. In order to possibly profit from early knowledge of this shift in sentiment, crypto traders can opt to establish a 

 so they can trade off the chart pattern’s formation. To break down the rounding top pattern, traders can watch for the three stages that form its inverted U-shaped curve.

Initial Buildup of the Rounding Top Reversal Pattern

The first stage of this pattern involves gradually rising prices and is characterized by low volume. This indicates that crypto traders may not actively be buying and selling at this time. Because of the lack of demand, some speculators might call this a 

, since there’s weak price action. Moreover, traders may notice that the asset’s price tends to face short-term bounces off resistance lines before resuming its gradual decline.

The second stage marks a shift in sentiment, with the asset’s price reaching a peak as part of the inverted U shape, before going back on the decline to form a range that sees the price bouncing off key levels. This flagging pattern hints that traders may be exiting the market again ahead of a potential negative catalyst or news story.

In the third and final phase of the rounding top pattern, traders may notice a buildup of selling pressure as the asset’s price trends downward, and a hint of an upcoming breakout as bullish candlesticks appear to signify the end of the flagging pattern. This is typically accompanied by a sudden increase in trading volume, confirming the asset's bearish momentum and subsequent downward price movement. 

During this portion, breakout traders usually start to enter into short positions with confidence as the price action is confirmed with the surge in buying volume. Conversely, if long positions were previously established, the recognition of this bearish trading pattern might be a sign to exit these long positions and lock in profits ahead of a drop in the asset’s price.

When Does the Rounding Top Pattern Breakout Occur?

If you’re a crypto trader who focuses on pattern breakouts, then you’ll certainly want to know when breakouts occur for the rounding top pattern. In this bearish pattern’s case, breakouts usually take place at the end of the formation when the price falls sharply below the support level that’s been established during the formation. As the price breaks below this level, it signals that sellers are dominating and likely driving prices lower. This can be an opportunity for traders to capitalize on a bearish move in the underlying asset, and to take action according to the existing market momentum.

Benefits of Using the Rounding Top Pattern

Keen to get ahead of the competition? Here are the possible benefits of including the rounding top pattern in your arsenal of recognized bearish chart patterns.

Early Recognition of the Bearish Pattern Formation

By understanding the formative stages of the rounding top pattern, crypto traders gain an edge over other market participants, as they can plan ahead and execute their trading plan according to how the price of the coin or token might move based on the pattern.

From trading on the breakout and building a short position to cutting the trade short and locking in profits, understanding the formation of the rounding top pattern helps crypto traders better grasp their setups and learn when to increase their position size.

Easy Setting of Take Profit & Stop Loss Levels

 can be straightforward if crypto traders make use of the price levels presented as part of the rounding top pattern. Those seeking to open a short position may consider placing their 

 levels at the peak of the inverted U shape in order to limit their risk. As for profit-taking levels, traders can attempt to play the breakout by setting a take-profit level slightly below the initial formation of the inverted U shape.

Although the rounding top pattern is a hot favorite among crypto traders with a bearish inclination, here are some risks that traders should take note of.

Using the rounding top pattern as part of a trading strategy can be risky, due to the inherent uncertainty in interpreting chart patterns. 

First, the rounding top pattern is hard to identify, and therefore traders may be unsure whether they’re observing a valid pattern or not. Secondly, since traditional chart patterns offer no certainty of future price movements, traders may experience losses if they misread the chart pattern and make wrong judgment calls. Furthermore, there may also be risks associated with false breakouts (

) that could lead to potential losses for traders.

As with all trading chart patterns, it’s key to recognize that the full formation of patterns such as the rounding top won’t play out perfectly. In particular, the second stage of the rounding top pattern may take days or weeks to fully play out. This can be a struggle for those who are 

 or trading with a shorter time horizon. Crypto traders who prefer to 

 or perform quick scalps throughout the day may ultimately lack the patience to see through their trading plan and let the rounding top pattern fully play out in order to realize a full recovery in price.

Because of the inherent volatility of buying and selling activity from market participants, nothing’s a sure bet when it comes to trading. This is made worse due to the somewhat volatile nature of cryptocurrencies. 

While the rounding top pattern may be considered a trusted formation for planning trades, given that it’s usually effective for trades with long time frames, non-viability might arise when catalysts cause marked changes in sentiment. While trading crypto, you may see huge surges and dips that cause an asset’s price to suddenly shift directions and break out of an established trend without prior warning. This can result in crypto traders becoming trapped in a trade after deciding to go short during the rounding top pattern’s second phase.

Relationship of Rounding Top Pattern to Double Top Pattern

A commonly known bearish charting formation that crypto traders rely on is the 

. It’s similar to the rounding top pattern in that both appear to play out the same in their initial stages. However, while rounding top patterns usually result in a breakthrough of the initial inverted U-shaped formation that acts as a support level, double-tops are characterized by false breakouts that cause the price of the asset to rebound off the established support level.

In order to not fall for such false flags, crypto traders can make use of complementary trading indicators and trendlines to confirm the downward movement of an asset before deciding to commit to their bearish trading plan.

Is the Rounding Top Pattern Worth Trying?

Based on the points listed above, the rounding top pattern is definitely worth trying as it’s relatively easy to identify and can help crypto traders get a better idea of when market sentiment changes direction. However, it should be noted that no pattern is 100% accurate, so it’s important for crypto traders to use other indicators and set appropriate stop-loss and take-profit orders in order to ensure their positions are adequately protected against large and unexpected market swings.

Regardless of your level of trading experience and/or prior knowledge, it’s key to grasp how the rounding top pattern works and forms in order to determine if it will work for you as a trader. This pattern ultimately requires longer time frames and a sharp eye, as rounding tops typically form over several days or weeks before even becoming remotely recognizable to trained eyes.

All in all, the rounding top pattern can be a useful tool for crypto traders looking to identify bearish sentiment in the market. However, it’s important to remember that this pattern should only be used as one of many indicators and trading tools when making trading decisions. We hope that you’re now better informed on the use of the rounding top pattern as a result of our simple trading guide. For more articles and guides on trading patterns and 

Rounding Top Pattern: How to Use It for Crypto Trading

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