Charting University » Bowls_Frying Pans and Dumplings
Bowl bottoms are slow moving bases which form a concave picture on the chart. This then moves to the upside as selling slows and Bulls regain the edge. I like to use the term 'U-bottom' in the chat room and while I am charting for us.
This pattern it is also known as a 'rounded bottom' in Western charting. The term fry or frying pan is yet another term, and comes from the Japanese culture, as they do a wonderful job at creating pictures in our mind that relate to formations. The name is not as important as identifying the pattern when it forms.
Inverted Bowl Tops are slow moving tops which are the flip-side of the bowl bottoms. These are also referred to as 'dumpling tops', 'saucer tops', and 'inverted frying pans'. These form when the chart forms a convex pattern. They are confirmed generally, when a gap to the downside is noted in the chart, away from the pattern.
Below is a chart of Apple that we actually worked very effectively during March and April of 2008. Although there is a two-day gap period where the stock moved higher right at the bottom and near the middle of the chart, the general formation is clearly shown above $140.00. (We actually triggered long above the $125.00 bias-line that was included in the nightly charts at the time).
Bowls are often found in Intraday charts following steep selling in the morning, then a gradual lift followed by controlled selling that holds the original bottom. Buyers then slowly overcome sellers over time, forming the bowl.
I have called many of these patterns over the years in the chat room after a sell-off morning. The longer they form - the stronger they usually move once triggered.
These patterns are one of the most predictive, but are often difficult to find.
However, when we do spot the makings of a bowl bottom, we look to trade off of the bottom of the 'right-side lip', or the chart level where the formation began when viewed to the left. Many traders monitor for the push of this 'lip' and will go long on its confirmation. Of course, the exact opposite is performed for the inverted top pattern.
The contrarian play in finance, is one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong. A contrarian believes that certain crowd behavior among investors can lead to, what they believe are, exploitable mispricings in securities markets. The play is to identify the early stages of this and to react accordingly to seek profits.
This chart offers a target of the upper 'right lip', or 'breakout', with a Trailing-Stop in place in case a breakout does occur. This offers an early entry for a possible significant short move. If the chart does break long, and this chart below does, you would stop-out and move with the new upward trend.
This is a chart that we followed in the nightly 'Dow Letter and Market Prep' writings during early May 2009's rally.
One final point regarding Bowls is that the smoother they are the more likely they are going to provide a smooth trend once they break out. Many times these take weeks or more to build across the Daily charts.