Amazon.com Inc (NASDAQ:AMZN), Apple, Inc (NASDAQ:AAPL) and Meta Platforms, Inc (NASDAQ:FB) have developed inside bar patterns on the daily chart. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."
A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
- Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
- For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.
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The Amazon Chart: Amazon broke bullishly from a pennant pattern on Nov. 4 and over the following trading days filled a gap between $3,549 and $3.580 left behind from July 30. The stock sold off over 2% on Wednesday, in sympathy with the overall markets, and on Thursday the stock was working to print an inside bar in consolidation.
The Apple Chart: Like Amazon, Apple fell about 2% on Wednesday but held above a support level near the $148 mark. On Thursday, Apple attempted to bust up over the eight-day exponential moving average on the daily chart but rejected. Apple’s inside bar on Thursday, also like Amazon’s, was being made on lower-than-average volume, which indicates consolidation.
The Meta Chart: Meta gapped down almost 1% lower on Wednesday and fell another 1.46% intraday to close the trading session at $327.64. Wednesday’s price action may mark the next higher low in the uptrend the stock began trading in on Oct. 28. If the uptrend is to continue, Meta may break bullishly from the inside bar pattern on Friday or set up a double inside bar and break up from it on Monday.