It’s no secret that one of my favorite techniques to take advantage of volatile markets is the inside day trading strategy, or ascending triangle pattern.
An “inside day” is a short-term price pattern that takes place when the price of a security trades “inside” the high and low of the previous trading session. It basically occurs when the second day has a range that’s inside the first day’s price level.
Inside day patterns tend to benefit traders because they calm things like volatility down a bit, giving us better prices and ultimately, less risk…
And lately, a lot of people have been asking me exactly how I find them…
How I Use the Inside-Day Trading Strategy
I use the inside-day trading strategy by looking for stocks that made 50-day price highs three days ago. Then for the subsequent three days, I want to see each high be lower than the previous day’s high, and the low lower than the previous day’s low.
So in a nutshell, I want each day to go inside of the previous day.
Here’s an example of my inside-day trading strategy in Alpha and Omega Semiconductor Ltd. (Nasdaq: AOSL):
If you look at the chart, you’ll see that AOSL made a 50-day high. If you count with me starting at the far right of the chart, I’m looking at the third bar (red).
Now, I want you to look at the next day’s bar, (last green bar). Notice how its high is lower than the previous bar’s high, and its low is higher than the previous bar’s low? Finally, we have the third day (right-most red bar). That bar’s high is lower than the prior day’s high, and its low is higher than the prior day’s low.
Can you picture how each of these bars could fit nicely inside the previous day’s bar? Like a matryoshka… but with a bar chart. This is a perfect example of an inside-day pattern.
Specifically, I like to see two subsequent inside days occur after the stock makes a 50-day high.
That’s the key, folks…
It’s a tricky subject, so check out my short video below for more examples on how you can use my inside-day trading strategy in your own portfolio.
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