Amazon, Apple, Microsoft Stocks Await Market Direction In This Key Pattern: How To Play The Break

Amazon.com Inc AMZN, Apple Inc AAPL and Microsoft Corp MSFT have developed inside bar patterns on the daily chart. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.

An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."

A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.

• Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
• For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.

Amazon, Apple and Microsoft could all be settling into bull flag patterns on the daily chart, with Friday's trading action acting as consolidation. For each of the three stocks, the pole of the pattern was created between Wednesday and Thursday and the flag developing over Thursday and Friday. Apple and Amazon both have small gaps below traders should be aware of whereas Microsoft does not.

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The Amazon Chart:

The Apple Chart:

The Microsoft Chart: