Give your best explanation on why a rounded top is a sign of trend dying.

R

Risepoint1879

I know that this is a rounded top, and not a pullback followed by another long. But I am seeking a good way to explain it conceptually. How would you explain the difference between a rounded top where the trend dies, and a healthy pullback? A rounded top is a sustained push up, rather than the normal up and down of a trend. One would think that it's a sign of strength, so why is it actually a sign of the trend dying?

I traded it as a pullback, which obviously didn't work.
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The difference between a trend reversal and a pullback is very complicated.

What looks like a trend reversal in a specific timeframe can look/be a pullback in another (higher) timeframe. But if it continues long enough it might become a trend reversal in the higher timeframe as well.

So pullbacks and reversals should always be studied in relation to timeframes and duration of the move.
 
schweiz said:
The difference between a trend reversal and a pullback is very complicated.

What looks like a trend reversal in a specific timeframe can look/be a pullback in another (higher) timeframe. But if it continues long enough it might become a trend reversal in the higher timeframe as well.

So pullbacks and reversals should always be studied in relation to timeframes and duration of the move.
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Do you take multiple TF into account for trades? My understanding is that the time frame that is most used by traders will have the most logic to it's cycles.
 
Risepoint1879 said:
I know that this is a rounded top, and not a pullback followed by another long. But I am seeking a good way to explain it conceptually. How would you explain the difference between a rounded top where the trend dies, and a healthy pullback? A rounded top is a sustained push up, rather than the normal up and down of a trend. One would think that it's a sign of strength, so why is it actually a sign of the trend dying?

I traded it as a pullback, which obviously didn't work.
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Yes, I know we all have different definitions of patterns, but the chart of AMD, there is no rounded top, this is a double top after a gap from the close. Without doing backtesting of this stock, the first high is a tight H&S to be sold. The bottom happens with less volume and forms H&S bottom most likely will go back up. And the 2 small counter waves up completes the 5 small wave swing forming the Quad top(tight H&S and current top) and with the gap most like is a sell short opportunity. But a rounding top in my definition it not.

http://thepatternsite.com/roundingtop.html
 
Risepoint1879 said:
I know that this is a rounded top, and not a pullback followed by another long. But I am seeking a good way to explain it conceptually. How would you explain the difference between a rounded top where the trend dies, and a healthy pullback? A rounded top is a sustained push up, rather than the normal up and down of a trend. One would think that it's a sign of strength, so why is it actually a sign of the trend dying?

I traded it as a pullback, which obviously didn't work.
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The issue with the trade IMO is not labeling the prior action that caused the downmove in the first place (could be called HnS, lower high, rounding top, wedge, or something else), but rather that you bought without any indication that buying was coming in - just a fat red bar at its low. The down move has to be reversed by something. Your options in this case are:

1. Buy the MA/support blind (what it looks like you did)
2. Go to a smaller TF and look for a reversal (tough since this is already a 1min chart)
3. Wait for the 1min TF to create visible reversal action of one to several bars - didn't happen until at least 3 bars later by which time the price was lower and we're talking about a whole different trade context.
 
There are multiple trends in play as @schweiz alluded to, and maybe you’re getting them mixed up. It *appears* that you intended to trade the uptrend which began near the end of the prior day, and was confirmed/ignited by the gap up. That trend — let’s call it the “primary trend” — didn’t “die”… it ended up continuing thru lunch.

The 1’ “micro trend” within the primary trend did “die” with the "rounded top,” though. (Semantic argument, but I’m OK with it — up move followed by multiple failed attempts to break higher, which resulted in a sorta rounded pattern on a micro level.) It looks like it was just a matter of temporary exhaustion of the minor rally within the primary trend. But I’m not sure how significant that micro-read of a "rounded top" is relative to the bigger-picture, primary uptrend you were trading — maybe it just adds noise?

If you pull up the 2’ or 5’ chart (easier to see) and also display the extended session, you can see there actually was a semi-parabolic move up into the area of the prior day’s high — so it was likely to be temporarily running out of demand, and into an area of potential supply.

Looking at the entry on the 1’ and 2’/5’ charts, I’m not seeing anything that might suggest taking a shot there/then (for example, not seeing any significant S/R to the left which might suggest that any pullback might reverse there.) What was your rationale?

There are a number of approaches & nuances different traders might use to either support or preclude an entry at some point: multi-TF alignment, S/R, price action/candlestick read, MAs, VWAP, depth of pullback, volume, quality of the gap, reversal time, overall market, etc., etc. But in perfect hindsight, there did appear to be a tradable trend — just a matter of your own approach and what your rules allowed.
 
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