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The sixth inside bar is a bullish bar with a lower shadow and is formed after a relative maximum of at least 20 bars, therefore during an uptrend or an upward breakout.
The outside bar is also bullish and usually has an upper shadow, which often contains the body of the inside bar.
Here’s how the price moves:
- uptrend or bullish break;
- reaching a relative maximum of at least 20 bars;
- the upper shadow of the outside bar tells a first indecision;
- the indecision continues with the inside bar. The price first falls and then rises to the maximum or a little below. The body of the inside bar is contained in the shadow of the outside;
- the price goes above the previous relative maximum and then goes down.
- you go short at the break of the close (for the more daring) or the minimum of the inside bar;
- stop loss on the maximum of the inside bar or on the maximum of the bar in formation;
- take profit as before.