An inside bar has a lower high and a higher low than the previous bar — all the price action occurs within yesterday’s range. The pattern occurs in all time frames and is a period of low volatility where buyers and sellers, presumably, can’t decide on the direction of the market.

Inside days are fairly common in the stock market, and they don’t necessarily precede predictable market moves. However, markets tend to shift between periods of low and high volatility, so an inside day could be a sign the market will become more volatile and break out in either direction. But there is no guarantee the market will move at all after an inside day, much less in a desired direction, so the trick is to look for clues the market may break out higher or lower.

The following analysis focuses on inside days with especially low volatility and relies on a simple rule to gauge the market’s potential future direction — higher or lower opening prices the next day. If, for example, the market opened above the previous day’s close, which was also an inside day, it seems likely the market would follow through and climb higher. And if the market opened below an inside day’s close, it might continue to drop.