Inside Day Candle Strategy: A Smart Approach to Day Inside Trading

Inside Day Candle is a technical pattern signaling market consolidation. Learn how to trade with the Day Inside strategy in the Financial Niche.

Technical analysis is the best way to predict the rise and fall in the asset price. There are numerous valuable tools and patterns to organize the chart analysis, the inside day strategy stands out as one of the most effective methods.

In this blog, we are going to discuss one of such most effective patterns, Inside Day in trading, and how to interpret it with pros and cons. It will help you determine profitable trading opportunities and make the best use of technical analysis.

What is Inside Day?

An Inside Day is a technical analysis-based candlestick pattern. It is formed when the highs and lows of the present trading day are within the price range of the previous day’s highs and lows. The candlestick inside day setup typically signals market consolidation with no clear bullish or bearish trend.

The trading range is narrow when the inside-day trading pattern appears on the chart. It generally indicates market consolidation with no clear bullish or bearish trend.

How to Spot Inside Days Candles

Key steps to identify an inside bar candle pattern:

1. The first step is to watch daily chart patterns of the asset price. Traders can use different charting platforms to monitor and analyze charts for free.

2. Look for prices high and low point. The upper and lower wicks of a candle generally represent the highs and lows. Meanwhile, the opening and closing prices are represented by the top and bottom of the candle’s body.

3. When the highs and lows of the day’s candle fall within the boundaries of the highs and lows of the previous day, an day inside appears. Basically, the previous day’s candle covers the current day’s candle. So, watch the two trading day candles to spot the inside days bar.

How to Trade Inside Day

Once you have identified the inside day candle pattern in the chart, it’s time to make trading decisions based on it. Here is how:

Market Consolidation:

Inside-day candlesticks usually indicate price consolidations. Consolidation is when the asset’s price moves in a narrow range without giving any clear direction of the market trends. During the consolidation phase, traders should avoid taking any position and wait for further price clarification.

Market Trend Reversal:

The inside day indicates consolidation; however, when the day inside occurs in a series, it indicates a trend reversal. In such cases, determining the direction of breakout can be difficult. The 3 inside down candle pattern is one example of a bearish reversal formation.

Price Breakouts:

Traders can even use inside bar patterns to determine potential trade entry points. Generally, traders place a trade in the direction in which the breakout has occurred.

When a bullish inside bar pattern breakout has occurred in the inside pattern, traders tend to place a buy order above the high of the day. Meanwhile, in a bearish inside bar breakout, traders tend to open a sell position below the low of the inside day in trading.

Variations of Inside Day Patterns

Three Inside Up Pattern – A bullish reversal pattern.
Three Inside Down Candlestick Pattern – A bearish reversal setup.
Double Inside Day – Two consecutive inside days, often leading to a stronger breakout.
3 Inside Candle – A variation of the pattern used in forex trading.
Double Inside Bar – Another multiple-day consolidation pattern that signals strong movement.

Traders also analyze the inside week structure, where an entire week’s price action stays within the previous week’s range.

Advantages

Diverse Market Trading:

Inside day is a universal pattern that appears on the chart irrespective of the asset you are trading. Traders dealing in forex, cryptocurrencies, stocks, indices, or any other financial asset can use it. It will help them gain valuable insights and diversify their capital into different assets.

Set Key Trade Criteria:

Numerous technical analysis patterns exist, but not every pattern gives clear entry and exit trading signals. However, Inside Days can help you with that.

The price breakout level can be ideal for entering a trade; meanwhile, the stop loss can be set at the opposite end of the inside day candle.

Low-Risk Trading:

Under inside-day candle trading, the price tends to move in a narrow range. Basically, the pattern occurs during stable market conditions. So, the price swings or volatility will be low during this period, ultimately leading to low-risk trading. Traders who don’t want to take too much risk can surely go for this strategy.

Limitations

False Trading Signals:

Technical analysis is based on probability and historical price movements. This means there is a chance that the price will move in a particular manner, but it is not guaranteed. The inside candlestick may provide vague trading signals during false breakouts. In such cases, the chances of suffering loss are high.

Complexity:

Organizing technical analysis requires the knowledge of charting patterns, indicators, and tools. Not every trader has a good understanding of these elements. Beginners and novice traders may face issues in spotting, interpreting, and inside bar candlestick pattern

Not Sufficient:

Traders cannot make a trade decision solely based on the findings of the inside day trading . For confirmation purposes, they need to use other indicators and charting patterns. In addition, they also need to consider fundamental analysis of market conditions, as sudden updates can change the entire market condition for traders.

Inside Day vs Outside Day

The outside day is just the opposite of an inside day pattern. Thus, many traders confuse them with each other. However, the outside day is a price action pattern that occurs when the highs and lows of the present trading day exceed the range of the previous day’s highs and lows.

Inside day primarily suggests consolidation, which occurs during low market volatility. Meanwhile, outside days primarily suggest trend reversal, which occurs during high market volatility.

Bottom Line

Inside Day can be a valuable trading indicator that can give you potential signals. Traders can identify potential opportunities, as well as entry, exit, and stop-loss order levels.

However, no charting pattern is 100% foolproof or accurate, so there is a chance of false signals. Traders can only use them with the right knowledge, proper practice, and risk management.

At Beirman Capital, we provide traders with a demo account facility. So, traders can practice a range of charting patterns and technical analysis tools on our platform. Open an account with us and get started us your trading journey today.

FAQs

What are inside day patterns?

An Inside Day is a technical analysis of candlestick patterns. It is formed when the highs and lows of the present trading day are within the price range of the previous day’s highs and lows.

Is an inside candle bullish or bearish?

The inside candle is neither bullish nor bearish; it is when the previous day’s candles fully cover the present-day candle and indicate a period of consolidation.

What is the difference between inside day and outside day?

The inside day occurs when the previous day’s candles engulf the present-day candle, which indicates a period of consolidation. Meanwhile, an outside day occurs when the present-day candles engulf the previous day’s candle, which indicates a trend reversal.

What is the Bullish inside day candle pattern?

A bullish inside day pattern is when the closing price is more than the opening price. It can indicate the continuation or reversal of the trend.