What is the Bowl Formation?
What is the Bowl Formation
The bowl formation is often seen at the end of a downtrend. It is characterized by the fact that during correction movements, prices follow a horizontal course after a decline and then start to rise. This formation can be seen as a signal that the downward trend will weaken and transition to a horizontal market. As prices begin to rise, investors often look for buying opportunities and are confident in the potential for prices to rise.
What is Rouding Bottom, Saucer Formations?
The Bowl formation, or "Rounding Bottom" or "Saucer Bottom" formation in English, is a graphic model frequently used in technical analysis. The bowl formation usually indicates that the downtrend is ending and prices are slowly forming an upward trend. This formation describes a situation in which prices rise steadily after a long period of decline, eventually forming a “bowl” or “saucer” shape. Prices usually start at a low level during this formation, move slowly upwards, and then stop at a low point, creating a saucer shape. Trading volume generally decreases during this process.
The bowl pattern indicates that the market's selling pressure is decreasing and buyers are slowly starting to push the price upwards. This could mean that the downtrend has weakened and prices are now trending upward. However, it is not recommended to use this pattern as a stand-alone signal. It should be evaluated along with other technical indicators, market conditions and fundamental analysis.
The bowl pattern can help traders predict trend reversals and identify appropriate buy or sell points. However, like any technical analysis tool, it can give false signals or fail. Therefore, investors should be careful when using this formation and use it in conjunction with other analysis methods.
Advantages and Disadvantages of Çanak Formation
As with every formation, the bowl formation has its own advantages and disadvantages. For this reason, it is always healthier to follow several different indicators together instead of sticking to a single formation.
Advantages of Çanak Formation,
Identifying Trend Reversals: A bowl formation generally indicates that prices have moved out of a downtrend and started to rise. Therefore, it can be a useful tool for investors to identify current trend reversal points.
Slowing Down: The bowl formation may indicate that the rate of decline of prices is slowing down and selling pressure is decreasing. This indicates that prices do not tend to fall further and buyers are starting to enter the market.
Long-Term Formation: Bowl formations generally form over a long period of time. This gives traders more time to confirm trend reversals and obtain more reliable signals.
Determining Buy-Sell Points: The bowl formation can give investors an idea about determining buy or sell points. When the formation completes and prices begin an upward movement, there may be an opportunity to buy or protect existing positions.
Combining with Powerful Fundamental Analysis Tools: The bowl pattern becomes a more powerful predictive tool when combined with other technical analysis tools and fundamental analysis. This can help investors make more sound and accurate decisions.
Disadvantages of Çanak Formation,
False Signals: Although the bowl pattern shows that prices have moved from a downtrend to an uptrend, it can sometimes give false signals. It can be misleading, especially if prices drop unexpectedly before the formation is completed.
Long Lasting: Bowl formations generally form over a long period of time and may take time to complete. Therefore, there is a need for investors to be patient in identifying trend reversals.
Low Opportunity Cost: Bowl formations generally form slowly and steadily. Therefore, early buying opportunities may be limited for investors and a waiting period may be required to confirm an upward reversal of the trend.
Should Not Be Used Alone: The bowl formation should not be used as a stand-alone signal. It should be evaluated together with other technical analysis tools and fundamental analysis. Relying solely on the pattern may result in false signals.
Market Conditions: Market conditions can affect the effectiveness of a bowl pattern, as with any technical analysis pattern. Particularly in volatile markets or markets under the influence of certain news, the reliability of the pattern may decrease.
The bowl formation is an important chart pattern in technical analysis and usually indicates that prices have ended a long downtrend and are starting to rise. The formation occurs at a point when prices begin to slowly decline, signaling that selling pressure is easing. Prices then move steadily upward, forming a plate or bowl shape.
During a bowl pattern, trading volume usually decreases, increasing the reliability of the pattern. Once the pattern is complete, prices usually begin an upward move, signaling the end of the downtrend. However, it is important that the bowl formation is not used as a signal alone. It should be evaluated together with other technical analysis tools and market conditions.
Traders should look for confirmation of a trend reversal after the formation completes and be careful when setting their targets. Like any technical analysis tool, the cup pattern can give false signals and should be evaluated along with the risks. As a result, investors should be patient when using the formation and make a decision by evaluating it together with other analysis methods.
How to Draw a Bowl Formation?
In many formations such as the Çanak formation, the most important thing is to detect the formation. It is necessary to follow more than one step to detect the formation.
Downtrend Detection: The first step is to identify the presence of a downtrend on the price chart. This generally refers to a period in which prices are in a persistent downward trend and move at lower lows.
Identifying Bottom Points: Identify the lowest price points that will be considered the beginning of the bowl formation. This can often be distinct bottoms or price levels on the chart.
Forming the Plate Shape: Next, draw a line connecting these bottom points. This line represents a period in which prices continue to fall, but the rate of decline is decreasing. The prices then slowly begin to rise, forming a plate or bowl shape.
Low Volume Observation: Trading volume generally decreases during a bowl formation. This means prices are rising but volume is low. Low volume can increase the reliability of the pattern.
Completion of the Plate: When the bowl formation is completed, prices usually begin an upward move, signaling the end of the downtrend. When the formation is completed, prices are expected to confirm the uptrend by breaking a certain resistance level.
Confirmation and Target Setting: After seeing the trough pattern complete and trend reversal confirmed, traders often use the pattern's height to set target prices.
