#内包线策略 indicates that the high and low points of a certain candlestick are completely within the high and low points of the previous candlestick, often representing market hesitation. Its trading strategies are often combined with trends and key price levels, with the core being the following three:
1️⃣ Trend Reversal Strategy: At the end of a prolonged one-sided trend, if a long momentum candlestick is followed by a single or multiple inside bars, it indicates that the original trend's momentum is weakening. When a strong outside bar appears in the opposite direction of the original trend, it can confirm a reversal signal. For example:
(1) After a long-term decline, if multiple inside bars appear, followed by a bullish outside bar, one may consider going long;
(2) After a long-term rise, if an inside bar appears followed by a bearish outside bar, one may consider going short.
2️⃣ Trend Continuation Strategy: In a clear uptrend or downtrend, if a price experiences a brief pullback and forms an inside bar without nearby key support or resistance levels, it can be seen as a signal of a temporary pause in the trend. Once the price breaks out of the inside bar in the original trend direction or an outside bar appears in the same direction, one can enter the market in the trend direction.
For example, in a downtrend, if a bearish outside bar appears after an inside bar during the pullback phase, it signals the continuation of the trend, and this strategy is more reliable when used during the first or second pullback.
3️⃣ Breakout Trading Strategy: When the price forms an inside bar at key resistance levels, support levels, or during range fluctuations, it signals a stalemate between bulls and bears.
(1) When the price breaks above the high point of the inside bar, one should go long;
(2) When it breaks below the low point of the inside bar, one should go short.
How to set stop-loss? 🤔 Set the stop-loss outside the high and low points of the previous mother line to avoid risks brought by false breakouts.