What is an Inside Day
Inside Day refers to a candlestick pattern that forms after a security has experienced a daily price range equal to that of the prior day.
BREAKING DOWN Inside Day
The inside day is a result of a security trading within the same high and low range of the prior day’s trading. It can be indicative of indecision in the market, leading to the security remaining stagnantly priced. The candlestick pattern performs at its best when it’s showing as a continuation pattern. Especially when viewed during uptrends and downtrends. A harami pattern is more specific form of an inside day candlestick formation and is generally used to identify coming changes in trends.
Although helpful, investors looking to use inside day candlestick patterns for market change predictions should use them in conjunction with other forms of analysis. An ascending triangle chart pattern, paired with an inside day, tells a broader story and indicates more significant changes ahead. The inside day pattern is a common formation and should not be treated as significant without additional analysis.
Investors often use the activities of the prior day to determine their entry point on long and short positions. An inside day may signify to an investor that their strategy should remain the same as the day before.
Example of an Inside Day
Since inside day chart patterns occur frequently, their significance is best determined by combining them with another indicator. For example, consider Fly TTN. Their stock has been trading at an average of $25 for past three days. The daily low has been $22 and the daily high has been $27. This shows on the chart as an inside day, indicating that the prices are stable and the stock for Fly TTN is neither in high demand nor at risk of dropping.
When used in conjunction with the ascending triangle chart pattern, traders can see that although Fly TTN is holding, the stock has been on an upwards trend over the past two months. An investor, believing that this is an indication that the security will continue to rise in value, may choose to purchase shares of the stock.
A trader who is only using the inside day pattern for analysis may opt to pass over Fly TTN, believing that the asset is not moving enough to be profitable. Investors who are particularly risk adverse may be lulled into a false sense of security by just using the inside day pattern, and miss out on opportunities that could net them a large return on their investment.