Inside Bar: A Short-Term Trading Pattern
As far as learning technical analysis goes, many investors will make short-term trades based on longer-term, "solid" patterns such as the head and shoulders top covered previously in this series. The problem with relying on solid patterns is that they are generally longer-term in nature and may not produce the short-term returns one hopes for.
One of short-term patterns that investors seek is a two-bar pattern known as the inside bar. This pattern reflects a short-term change in investor sentiment, so that if a pattern has been driven downward, the possibility is that the short-term prices will turn around and head the other way.
Identifying an Inside Bar
Investors who are just learning technical analysis might have a tough time identifying the inside bar. Explained (our website has a diagram), the inside bar pattern consists of a taller bar (wide trading range) followed by a shorter bar (tighter trading range). The shorter bar will fall within the same range as the preceding bar.
Find Supporting Data
When it comes to using the inside bar to commit to a trade, investors should seek additional confirmation through additional analysis. This step is often overlooked when investors start learning technical analysis. Other analysis includes fundamental data for the security, sector and market, as well as technical data such as support and resistance levels and momentum.
As far as the reliability of the inside bar pattern, investors will find greater success when the bar takes shape following a steeper inbound trend. In terms of the bars themselves, investors will want to see a longer first bar (which suggests that stronger momentum has dissipated and reversal is imminent) and a shorter second bar, which suggests a more dramatic reversal to come.
And lastly, the volume level should be lower for the second bar than for the first, as this hints at a better balance.
For investors learning technical analysis, please remember that no single indicator should be used in isolation. Confirmation is highly recommended from other tools. For investors who would prefer a hands-off approach, there are trading software programs that will simply make buy or sell calls. - 23204
One of short-term patterns that investors seek is a two-bar pattern known as the inside bar. This pattern reflects a short-term change in investor sentiment, so that if a pattern has been driven downward, the possibility is that the short-term prices will turn around and head the other way.
Identifying an Inside Bar
Investors who are just learning technical analysis might have a tough time identifying the inside bar. Explained (our website has a diagram), the inside bar pattern consists of a taller bar (wide trading range) followed by a shorter bar (tighter trading range). The shorter bar will fall within the same range as the preceding bar.
Find Supporting Data
When it comes to using the inside bar to commit to a trade, investors should seek additional confirmation through additional analysis. This step is often overlooked when investors start learning technical analysis. Other analysis includes fundamental data for the security, sector and market, as well as technical data such as support and resistance levels and momentum.
As far as the reliability of the inside bar pattern, investors will find greater success when the bar takes shape following a steeper inbound trend. In terms of the bars themselves, investors will want to see a longer first bar (which suggests that stronger momentum has dissipated and reversal is imminent) and a shorter second bar, which suggests a more dramatic reversal to come.
And lastly, the volume level should be lower for the second bar than for the first, as this hints at a better balance.
For investors learning technical analysis, please remember that no single indicator should be used in isolation. Confirmation is highly recommended from other tools. For investors who would prefer a hands-off approach, there are trading software programs that will simply make buy or sell calls. - 23204
About the Author:
Chris Blanchet has been a Financial Advisor for more than 16 years. For investors looking to learn technical analysis for free, Chris offers a free e-course at Online Trader Today.com. His personal debt-free blog can be found at How To Repay Debt.com.
posted by X - Men @ 3:04 AM
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