January 23, 2009

S&P 500 Inside Day Pattern Trading

In the last two days, S&P 500 index formed two inside days formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. This term often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend. An inside day is often used to signal indecision because neither the bulls nor the bears are able to send the price beyond the range of the previous day.

Should today's S&P Index drop below Wednesday's low (804.47), we would see more downside drop on the index; If the index broke above Wednesday's high (849.94), that would typically mean a buy signal for a short-term trade.