Dummy Trading Tip - Two Inside Bars

In response to reader feedback asking for more coaching/training type posts, I am going to explain setups in a little more detail.

Two inside bars are better than one and we had a few nice setups from the watch list in the early going. In the first hour of the trading session I like to sort my watch list by % change which gives me the big movers at either end of the spectrum - long and short.

Today we had a number of strong starts and we don't want to chase winners because this can lead to big draw downs if the timing is off. So we wait for low risk dummy entries. I am very fond of two inside bars because I've had a lot of success with the pattern. Why is it successful?

Two inside bars are like a coiled spring. A sort of Jack in the Box. In the example above FWLT pops up on the open with a WRB. It consolidates on declining volume and carves out two inside bars, the second of which is inside the the previous inside bar. Thus the coiled spring is ready to pop once again. I prefer when the trigger bar is green for longs and red for shorts. Also, make sure that the 5 period ema is in very close proximity to the the second inside bar.

Another criteria I like to employ is proximity to the pivot level. A base at the cusp of R2 like we have on the FWLT and CROX charts is ideal because, in theory, there is less resistance. NTRI bases at P which is fine as long as we have sufficient distance between the next PP level.

The CROX chart below, also from the WL, meets the criteria perfectly.

NTRI, another WL stock is less obvious. Here we don't have declining volume on the two inside bars, so I strongly suggest that you drill down to a lower timeframe in order to properly assess if there is a viable setup here.

A quick look at the 5 min. timeframe below, and we see a low risk B&B entry with a series of higher lows leading into the base, so it is safe to take the entry.

Burn this simple setup to memory and then look for it to develop within the first half of the morning. On any given day, with a WL of approximately 50 stocks, you should be able to spot one, if not two, like setups. It works especially well on stocks coming out of a relatively flat or narrow base. Good Trading!

Edit: This post previously described the second inside bar on the FWLT chart as NR7, but it's actually NR5, so I've eliminated the reference altogether to avoid confusion.