Two Inside Day Candles In a Row, What Now ?
As expected, Nifty futures traded sideways for the entire trading day on Wednesday, in spite of recovery in the international markets. The sideways trading observed during the last two trading days has lead to the formation of two inside day candles in the daily chart of Nifty futures. An inside candle after a fast move is an indication of indecision by the market participants. And sometimes these inside day candles can also indicate reversals and are used as trading setups. Here is a reproduction of an old post which described the inside day candle trading set up.
How to Trade an Inside Day Candle
- As this author feels that he is obliged to the readers to at least add a small note on how to trade an inside day candle, here it is !
- The last candles complete range is covered by the immediately preceding candle. Therefore, the last candle is called an inside candle. Please also note that the range of the inside day candle is very small in comparison with the previous candles.
- In order to trade the inside day candle, place a stop buy order above the high of the candle.
- Inside Day Candle- Chart 2
- Similarly, place another stop sell order at the bottom of the candle.
- When one of the orders gets executed, the other order becomes the real stop loss order.
- Manage the trade by adjusting the stop loss or exit near a known support or resistance.
- Not every trade may lead to profits and on certain days both orders may get executed leading to losses.
Nifty Futures - Daily Chart
Formation of the inside day candles makes the immediate next direction of the Nifty contracts uncertain. Though the medium term trend is downwards, especially after the break of long term support line, markets can even make surprise rallies and test the upper resistances once more before resuming the down trend. However, it seems that the chances of the Nifty futures resuming the downtrend outweighs the start of significant recovery.
