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GKP daily 02/07/13 Inside Bar

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There really hasn't been much going on in recent days to give us a clue towards future movement but, at last, we have something to watch for - today's inside bar.

An inside bar is when the entire day's trading range is contained within the previous day's range. Some technicians go further and even require the inside bar's range to be within the candle body of the previous day but in my view that's not necessary.

The point about an inside bar is that it represents indecision. There aren't enough buyers to break the previous day's high nor enough sellers to break the previous day's low. This gives us an opportunity since we know the market is looking for the same signal as us ie direction.

[Another way to view inside bars is that on smaller timeframes they're also triangles - usually of the symmetrical type - and we also know to trade these in the direction of the breakout.]

As far as I know there are 2 schools of thought in how to trade these (apart from the school which says they only really work in very high volume instruments). One is to trade on the breakout of the latest bar on the chart (ie today's in this case), the other, safer method, is to trade on the break of the covering bar (ie yesterday's). Either way stop losses should be outside the covering bar - above the high for short positions, below the low for longs.

Bear in mind that not pattern is 100% reliable to trade so even these can give false signals, perhaps especially when volumes are so low and there might be some games being played in the background.

My instinct (and experience) tell me here that this inside bar will likely break down, simply because of where it is - on the short timescales charts (again, bearing in mind the lack of volume and therefore the increased unreliability of those charts), if it;s a triangle then it's more likely to be a consolidation move on the way down from 157.75p, but it's too hard to tell given the poor volume (perhaps another indicator of a lack of strength).

The two levels to note, therefore, are 149.75p and 140.5p.
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