Inside days refer to a candlestick pattern that forms after a security has experienced daily price ranges within the previous day's high-low range. That is, the price of the security has traded "inside" the upper and lower bounds of the previous trading session. Also known as "inside bars."
Inside days can be indicative of indecision in the market for a security, causing little price movement relative to the previous trading days. However, when several inside days occur consecutively, there is a higher probability that the stock will soon break out of its trading range, as a continuously dwindling price range is unsustainable. How it breaks out, though, cannot be determined solely by candlesticks showing inside days. The pattern of inside days must be combined with another technical analysis tool to help predict whether the break is to the upside or downside. For example, an ascending triangle chart pattern, coupled with inside days, may foretell a bullish movement in the stock; conversely, a descending triangle is historically a bearish signal. Other common pairings with inside days as a short-term trading strategy are the relative strength index (RSI), moving average convergence divergence (MACD) and simple moving averages (SMA). Trading with these technical tools is a highly specialized practice and therefore must be done carefully. Spotting inside days is of interest to a trader because he may believe that the subject security is setting up for some sort of move up or down. Application of another technical tool could give him sufficient confidence to place a bet on a potential pending move in the security price.