Technical analysis can be very complicated if you don’t focus on the most important basics, such as support and resistance levels.
These areas represent a psychological level where the game is played between buyers and sellers, let me give you an example:
If sellers overcome buyers they will push the price below the support level. Some buyers will feel afraid to lose money, because they see that the support level is broken .so, they will get out, and sell the market again to cover their loss.
Other participants will notice that sellers are in control of the market, they will decide to sell the market and help the bears push the price to go down.
As a trader, if you have enough knowledge about support and resistance levels, when you open your chart, you will notice that the support level is broken, and the bears are in control of the market, this is a good selling opportunity right? But the question is, what is the right time to enter the market?
The inside bar pattern is one of the most reliable price action signal that will give you the right time to enter the market and make big profits.
Once you understand how to use it in combination with these levels, you will get clearly what the market is telling you, and you will make good trading decisions.
See the chart below:
The illustration below shows how sellers broke the support level, the formation of the inside bar pattern after the breakout of this level signals indecision in the market.
Right now, no one knows if the support level is really broken, if you sell at market immediately after the breakout of this level, you are making an aggressive entry, which is little tricky and dangerous, because the breakout is not confirmed.
But if you are used with trading inside bars and you understand the psychology behind their formations, you will know that the safest entry should be after the breakout of this pattern.
The breakout of this candlestick pattern is a clear confirmation that the market is not still in an indecision period, and sellers are obviously in control of the market. See another example.
The chart above shows how the market participants interact with these levels, and how the resistance level acts as barrier.
The market has had difficulty rising above; this horizontal level prevents buyers twice from rising any further. But in the third attempt, buyers broke through the resistance level.
What is interesting is what happened after the breakout, look at the chart again, you will notice that there is a clear inside bar pattern formed over there.
The formation of this price action pattern indicates that the breakout is not yet confirmed, remember, an inside bar formation means indecision and hesitation. So, you have to be careful, and bear in mind that a false breakout scenario is possible.
What will make a difference between you and other traders is your deep understanding of how this pattern works, in this chart above, you will know that the best time to place a buy order should be after the breakout of the inside bar pattern not after the breakout of the horizontal level.