To Learn Technical Analysis Means Understanding the Inside Bar
When it comes to learning technical analysis, a lot of investors will consider the \”big picture\” patterns and make short-term trades based on such indicators or patterns. The problem, however, is that bigger picture readings are often long-term in nature. So, let\’s take a look at a short-term pattern.
A short-term pattern that many investors will rely on is the inside bar pattern. This pattern indicates a possible reversal of the current trend. For example, if the trend has been down and the inside bar appears at the end of such a trend, then there is a possibility that the trend will reverse and head up.
Discovering an Inside Bar Pattern
For investors who are learning technical analysis, identifying the inside bar might be a little more difficult. It involves a taller bar one day, followed a smaller bar the next. The smaller bar consists of a trading range within the preceding day\’s taller bar.
Confirm The Pattern
One thing many investors understand is that an inside bar should never be used in isolation when making trade decisions. When learning technical analysis, it makes sense to find support for other patterns and trends in other analysis. With the inside bar, investors should consider support and resistance levels, momentum readings, and other fundamental data relating to the security, sector, and market as a whole.
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.
With more than 16 years of financial services experience, Chris is an Advisor to the Mutual Fund Site.org, a website that helps people decide Where To Invest. The site remains bullish on specific types of Bond Funds.
