Transcription
Hey everyone, how's it going? My name is Richard and welcome back to the Traderlion channel.
Now, today's trading strategies video. We'll be talking about inside days and inside bars in general and how to use them effectively. Now, by themselves, inside bars, inside days, inside weeks are not trading setups or trading strategies. But when paired with a high potential stock with a great story, fundamentals, as well as a promising chart pattern, this can be a very effective strategy to position in such a name.
First of all, what is an inside bar? Well, using this inside day as an example, you can see that this trading range from the high to low is completely contained within the prior day's range from the high to the low. So I've drawn out a horizontal line from the high and from the low, and you can see the stock didn't manage to break out or undercut this level either. And for those of you who use T 2000, here is the PCF code. It's very simple. Basically, the high is less than the prior day's high, and the low is greater than the prior day's low. And you could easily transfer this over to TradingView or Finviz. So that is how an inside day is defined. And you can see on the charts, anytime there's a blue histogram, this is also an inside day, as is this, as is this one as well.
So now that we know the definition of an inside day, how do we effectively use it within our trading? Well, as we know from market structure, stocks like to trend to the upside, to the downside, or go sideways to form a base and consolidate and kind of get ready for the next move. And on a short-term timeframe, an inside day is basically a very short-term consolidation, volatility contraction pattern because by definition, this range is contained within this one. And basically, the stock will have to then choose a direction based on which way the institutions are net buying or selling. And if it goes to the upside from the inside day, we might have a trend of a few days to the upside, and likewise to the downside, we might have a short-term trend as it breaks this low.
And this same thing holds true on a weekly chart. If we go to a weekly and find an inside day right here, you can see that as soon as we break above this inside week, sorry, this is an inside week because we're on a weekly timeframe. We have a short-term directional move for a nice potential trade. So the same concept holds true on a daily chart, a monthly chart, yearly chart. Basically, it's a short-term consolidation, and then from tightness comes expansion.
And going over to this space right here, this is really the whole point of this video is you always want to use an inside day, inside week within the context of a high potential stock, as well as a strong overall chart pattern. So here we've got a kicker candle and a nice move up the right-hand side of the base, right near a pivot, and then we have a nice inside day on declining volume. That's also key, you always want to see declining volume on these inside days. And from there, we get an inside day and up, which starts a nice uptrend into the end of 2020 on Tesla. So this is a good example of an overall strong chart pattern. And from there, you could use an inside day and up as a short-term tactic to position in such a name, managing risk maybe at the prior inside day's low or the low of this day even.
And what's important to remember is that an inside day is a very short-term pattern, and it's best used for swing trading or even day trading. But if you're more on the position trading or investing side of things, you might want to prefer to go over to a weekly chart and find basically inside weeks and look for inside weeks and up near an overall base pivot. So here we've got Tesla in 2020, formed a base pivot right here at around 192 post-split, and we had a nice inside week right here, and then a powerful breakout on higher volume than this inside week. And from there, we have a nice start to this overall trend. So inside weeks are great for investors, position traders, and you often get a really explosive move breaking out of these pivots because, as we know on a daily chart, this is a volatility contraction pattern on a short-term timeframe.
And for another example of this, which really shows how double inside weeks or inside weeks in general are actually volatility contraction patterns, we can go ahead and look at PLTR within an IPO base, nice volatility contraction pattern, declining volume on the pullbacks, move up on higher volume. And going over to a weekly chart, this is actually double inside weeks, which is a really powerful pattern, and I highly recommend you set the screen for something similar to this. And from this point, we have a super powerful move breaking out of this inside week and up, yielding a 100-200% move in just a matter of a few short weeks.
And recently, one thing I've been watching, one stock I've been watching, which is showing double inside weeks, is Unity. And you can see nice double inside weeks above this prior pivot after a push up on volume. And we have yet to have a definitive breakout through this pivot, but I'm watching for a breakout through this high, this one as well, and this one. So a lot of pivots are lining up. And once you spot an overall pattern like a double inside week, what you want to do is go down to the lower timeframe and find a spot to enter right near those pivots where you can manage your risk against the low of the day and basically have your stop loss at a relevant technical level.
So overall, that is a brief explanation of how to use inside bars as a swing position trader to basically buy that expansion from that contraction. And what's important to remember is always look for declining volume on the inside day, ideally a good closing range as well on an inside day, inside week, higher than mid-range. And also, you always want to look for inside days, inside weeks within the context of a strong overall pattern and in a high potential stock with great fundamentals and technicals.
So with that, thanks for watching. If you enjoyed, go ahead and leave a like down below and subscribe if you're not yet to the Traderlion channel. I'll see you guys in future videos. Thanks.