| Learn Technical Analysis - The Inside Bar |
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| Written by Chris Blanchet |
| Thursday, 25 June 2009 12:50 |
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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.
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. 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. Discovering an Inside Bar Pattern 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. Supporting Criteria 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. Finally, volumes should be smaller on the inside bar than on the first bar. 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. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. 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 |
| Last Updated on Friday, 10 July 2009 13:23 |