In the last issue, we learned about the "round bottom pattern" under the reversal breakout pattern in pattern theory, and today we will analyze the round top pattern, which is also an important pattern in the technical analysis of the stock market.
First of all, the morphological interpretation
A circular top refers to a circular line of price movements, where the new high is higher than the previous point, and then the recovery point is slightly lower than the previous point, so that these highs are connected to form a circular top, and a circle shape will also appear on the corresponding volume.
Morphological judgment criteria
The round top pattern usually occurs during an uptrend in a stock price or stock index, especially after the stock price has been rising for a while.
Corresponding to the stock price trend, the trading volume also presents an arc shape, that is, the trading volume at both ends is larger, and the trading volume at the top and middle position is smaller. This reflects the gradual weakening of trading activity among market participants during the rise in stock prices.
Pattern signals
The appearance of a circular top pattern is a sign that the stock price has peaked.
It shows that the bullish forces gradually weaken after maintaining the stock price rise for a period of time, while the bearish forces gradually increase, and after the two sides reach equilibrium, the stock price begins to fall, forming the apex of the circular top; Subsequently, the bearish forces gradually became dominant, and the stock price began to fall rapidly.
In the picture above, EGing Optoelectronics walked out of the very standard round top shape, and then there was a significant adjustment, which can be seen that the round top appeared, killing all sides, and in this form, you need to stay away.
Market judgment
During the formation of the round top, the bullish forces gradually weaken, and it is difficult to continue to push the stock price higher, which may be due to the fact that market participants' expectations for the stock price increase have changed, or because there are factors in the market that are not conducive to the stock price increase.
As the power of the bulls weakened, the power of the bears gradually increased, and in the process of the stock price retreating, the bears continued to sell stocks, resulting in an accelerated decline in the stock price.
The emergence of the round top pattern indicates that the market trend may be about to change, and investors should pay close attention to the market dynamics and adjust their investment strategies in a timely manner.
Investment strategy
Investors should remain cautious when observing a circular top pattern and wait for the pattern to be fully confirmed before making a decision.
Generally speaking, when the price breaks through the neckline (i.e., the straight line connecting the lows to the left and right of the rounded top) downwards during the formation of a round top, it is a good opportunity to sell short.
Once the round top pattern is confirmed, investors should adjust their investment strategy in a timely manner; For stocks already held, you can consider gradually reducing or liquidating your positions; For stocks that have not yet been bought, you should stay on the sidelines or choose other investment opportunities.
In conclusion, the round top pattern is an important pattern in the technical analysis of the stock market, which indicates that the stock price may be about to peak and turn down; Investors should remain cautious when observing this pattern and adjust their investment strategies in a timely manner to respond to market changes. Well, that's all for today's content sharing! Happy learning! See you next time!