Inside Bar Trading Strategy

The forex market’s high liquidity and volatility make this strategy work well, letting traders make the most of big price changes. Using the inside bar in a trading plan needs careful analysis and knowing the market well. Skilled traders often use extra indicators to check the signals from inside bars. As mentioned above, it’s ideal of the inside bar forms inside bar trading strategy near the pin bar’s nose (real body).

It is also one of the most frequently seen patterns that appear regularly in any market condition. So, as you can assume, there’s no one version of the inside bar pattern. An inside bar is a candlestick pattern where the high and low of a candlestick are within the high and low range of the preceding candlestick. This means that the entire price movement of one candle is confined within the price range of the previous candle.

It can be used to follow and trade with a trend or show reversals within the market through its candles. InSide Bars vary in size and range of the candle body, with the smaller variants showing an indecisive market. The strategy is useful when determining market strength and to capture a swing or ride a trend on the exit. Some traders prefer to enter using a stop order and when the price breaks out of the InSide Bar. Many like this method because they enter the trade just as price moves in their favor. Please be mindful, however, that there is a possibility of a false breakout in this case.

Profit targets can be determined based on the trader’s trading plan, technical indicators, or key support and resistance levels. The inside candle pattern occurs when the high and low of a candle are contained within the range of the preceding candlestick, indicating consolidation or indecision in the market. It suggests a potential reversal or continuation of the current trend. On the other hand, an outside bar, or engulfing pattern, happens when the high and low of a candlestick completely engulf the previous candle, signalling a potential reversal.

1. Therefore, the bearish breakout of the inside bar (2) would be a low priority for a trader who reads the footprint.
2. The Inside Bar pattern provides the most reliable signals when traded on a medium-term chart like a daily chart.
3. We’re also a community of traders that support each other on our daily trading journey.
4. This bar is still “covered” by the previous candle, but the range is larger than the standard.
5. An inside bar (2) formed just below the resistance level (1), indicating some temporary indecision among market participants.
6. For instance, an ‘Inside Hammer’ is when the second bar is both an Inside Bar according to the selected definition and shaped like a ‘Hammer’.

The price keeps squeezing tighter and tighter like a coiling spring getting ready to pop. There are the following three inside bar trading strategies explained. We have our mother bar form and our 2 required inside candlesticks. Unlike most instruction where you take a mother bar breakout for an entry, we won’t  Instead, we are going to buy stop the break of the high of the second inside bar.

Unlock Proven Profits: Master Backtest Inside Bar Strategy

Therefore, the bearish breakout of the inside bar (2) would be a low priority for a trader who reads the footprint. Instead, they might trade false breakouts of the lows, expecting the price to move upward after triggering buyers’ stop-losses. Inside bars can be traded in trending markets in the direction of the prevailing trend, often referred to as a ‘breakout play’ or an inside bar price action breakout pattern. They can also be traded counter-trends, usually from key chart levels, where they are known as inside bar reversals. There is no single best time frame for using the Inside Bar pattern; it largely depends on your trading approach. However, the general rule is that the higher the time frame, the more reliable the candlestick formation becomes.

You could consider entering a long position in the direction of the breakout. Conversely, if a bullish Outside Bar forms during a downtrend, it might indicate a possible bullish reversal. Consider going long in the direction of the Outside Bar’s closing. Inside and Outside Bars are two prevalent candlestick patterns in technical trading. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.

An InSide Bar is a candle that is essentially “covered” by the previous candle. When you see this type of candle, it usually means that there has been reduced volatility within markets. The InSide Bars are not all equal in terms of size and range, and it is important to keep this in mind throughout your analysis. This will be explained further below in our What to look for section. Second, relying solely on inside bar setups is unreliable, especially for beginners.

How to Trade the Inside Bar Pattern

It’s important to note that these are the ‘classic’ or standard entry and stop loss placements for an inside bar setup. Experienced traders might choose different entry points or stop loss placements based on their strategies and preferences. The traditional entry method for an inside bar setup involves placing a buy-stop or sell-stop order at the high or low of the mother bar. When the price breaks above or below the mother bar, the entry order is triggered. When an inside bar breakout happens, it means the market is moving out of a calm phase and into a new trend.

1) The pin bar + inside bar combo, consists of a pin bar that consumes a small inside bar toward the nose of the pin (the pin bar’s real body). It signals an expansion of volatility rather than consolidation and can indicate strong buying or selling pressure. A Bearish Inside Bar appears within a downtrend, indicating a momentary consolidation or pause before a potential continuation of the downward movement. A trend continuation is likely if the breakout aligns with the current trend, while a reversal may occur if the breakout moves against it. Trends can be the most profitable market condition to make money if a trader can find a reliable entry mechanism—that is where an Inside Bar Pattern can help.

What is a Bullish Inside Bar Pattern?

Additionally, the Inside Bar pattern provides even more accurate signals when clubbed with a technical indicator like RSI. Any timeframe shorter than this does not provide accurate signals as the prices are influenced by noise, and the pattern may occur several times without any solid market signal. On the other hand, any timeframe longer than this may be too spread out for the Inside Bar pattern to provide ideal market continuation or reversal signals. Its relative position can be at the top, the middle or the bottom of the prior bar. Here are 10 bar patterns that you must know, complete with trading examples and resources.

1. Many trading platforms have built-in indicators to show these patterns on charts.
2. This inside bar strategy is based on the fact that price decides its direction from key levels.
3. When an inside bar breakout happens, it means the market is moving out of a calm phase and into a new trend.
4. If the currency pair prices diverge from the existing trend before the price consolidates, a reverse price breakout is confirmed.
5. Sarah Abbas is an SEO content writer with close to two years of experience creating educational content on finance and trading.

Generally, the longer the time frame, the better the signals the inside bar pattern provides. However, the pattern is certainly more suitable for short-term trading techniques. If you are a scalper, you can use the inside bar in a 15-minute timeframe or lower. Even though the pattern is known as having a structure with one large bullish or bearish first candle and a second smaller candle, it could have many other chart formations. For example, the inside bar pattern could also be formed with a large first candle and a second tiny Doji candle. Technically, as long as the first candle covers the second candle, then it’s an inside bar pattern.