To Learn Technical Analysis Means Understanding the Inside Bar
Many investors who are just learning technical analysis will make short-term investment decisions based on reliable, longer-term patterns such as the head and shoulders top discussed elsewhere in this series. The difficulty with such a strategy is that short-term trades based on long-term patterns will typically not yield the desired gains.
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
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
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.
Lastly, investors should notice that volume on the smaller bar is lighter. This suggests a more balanced trading activity.
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. - 23196
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
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
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.
Lastly, investors should notice that volume on the smaller bar is lighter. This suggests a more balanced trading activity.
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. - 23196
About the Author:
Chris Blanchet has more than 16 years of experience as a Financial Advisor at one of the world's largest banks by market capitalization. To learn technical analysis free visit Online Trader Today.com where Chris writes about Technical Analysis and Options trading. Chris also maintains a debt-free blog at How To Repay Debt.com
posted by X - Men @ 12:05 AM
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