What exactly is “inside candle signal trading”?
Before I proceed to explain, I think it would only be fair to briefly talk about candlestick charts and how they came about.
The combined power of western technical’s and candlesticks when used correctly is a force to be reckoned with when analysing a potential trade.
Although the western trading world has recently become familiar (since the 1980’s) with candlestick trading methods, the Japanese have been using these charting techniques for hundreds of years to trade rice contracts.
Candlestick patterns give an instant and visual indication as to who is in charge of the prevailing market i.e. “bulls or the bears”.
Candlestick patterns must never be traded on their own, no matter how tempting the situation may look to a trader. Candlestick patterns are very effective in giving advance price reversal signals and that is it, it will not give any indication of the size of the reversal.
Western technicals usually play an important part in the final decision, and guide the trader in deciding, if he should go with the reversal indicated by the candlestick pattern or not.
In Technical analysis, whenever the price gets overbought or oversold, traders look out for a variety of trading signals to put on a trade.
Traders use candle patterns to help them find early price reversals, however there is a powerful candlestick pattern that for some reason is not spoken of very much, and many traders fail to observer it for their signal trading, or trade analysis, this is the “inside candle reversal pattern”.
An inside candle is a candle that forms inside the previous candle, the inside candle’s highs and lows must never exceed that of the previous candle, this powerful reversal pattern however, is valid only if it is has resulted soon after an overbought or oversold situation presents itself – otherwise it is not a valid inside candle!