Inside Bar and Outside Bar patterns are highly versatile tools in price action trading, offering traders clear signals to navigate market trends and potential reversals. Their effectiveness lies in their ability to capture key market movements while remaining adaptable across different timeframes and trading scenarios. Below are the key qualities that make these patterns essential for any trading strategy. It is not inherently a signal of trend reversal but rather an indication that the market is pausing, which could lead to either a continuation or reversal of the previous inside bar forex trend.
What Is an Inside Bar Candle Pattern?
The daily timeframe is the best to trade inside bar patterns. However, you can trade the inside bar on 30M or any timeframe above 30M. To make a trading strategy, first, understand the logic behind price action. If you do this, you will capture the best trades automatically by a single chart view.
An inside bar is a two-candlestick formation that appears on a price chart when a candlestick’s high and low range is contained within the high and low range of the preceding candle. In other words, the entire price action of one candle is confined within the previous candlestick’s price range. It is important to learn the structure of the inside bar pattern. It tells the traders that the market is looking for direction. Big institutions and big traders are deciding either to upward or downward.
To spot a valid inside bar, check if the candle is fully within the range of the previous one. Make sure the pattern is not too small compared to the previous candles. This strategy uses inside bars to spot when a trend might keep going. It simply represents a period of consolidation or market indecision. Thus, a formation in an uptrend can be bullish and signal a continuation of the trend, or bearish and signal a trend reversal. The same concept applies to a downtrend, where the indicator may be bearish and the trend will continue, or bullish and the trend will reverse.
Are you ready to take your trading to the next level?
A stop-loss order might be placed below the low of the pattern in a long trade and above the high of the pattern in a short trade. Profit targets can be determined based on the trader’s trading plan, technical indicators, or key support and resistance levels. The meaning of an inside bar candle pattern that is bullish refers to the pattern, after which the price moves upwards.
Only the breakout of the inside bar decides the direction of the market. The inside bar breakout means the break of high or low of inside bar candlestick. This setup increases the probability of reversal in trend after inside bar breakout. Because moving average breakout already indicates a reversal in the trend of a specific currency pair. Now if an inside bar forms just after the MA breakout, then it indicates the decision zone. Price is deciding either to reverse the trend completely or come back inside the MA to continue its previous trend.
Then, we also see a bullish inside bar (marked with an ellipse), which happened days after a pullback stemmed from the trend line. It would be a different situation if the pattern formed on the line itself. Like any other candlestick pattern, the Inside Bar doesn’t give an exact entry and exit points. So, they should be used in combination with other indicators like moving averages. The Inside Bar is a typical pattern and can frequently appear on the forex charts.
Possible Strategies For The Inside Bar Pattern
Other traders may use a trailing stop instead of waiting for some time (with no guarantee of a favourable outcome) for the market to reach the key level. This approach is designed to help you lock in profits more consistently at predetermined increments. Still, some skilled traders can also trade the inside bar during a ranging market, provided there is enough confluence (leading us to the next part of an ideal setup). Psychologically, the inside bar comes after a phase of market consolidation where neither buyers, nor sellers dominate. This indecision may be due to a pending news event, accumulation of orders by institutional traders (or ‘smart money’) or simply profit-taking. The Inside Bar Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.
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. No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses. The inside bar pattern also gives great breakout trading opportunities, and it’s very simple to trade. For instance, if you are aiming to purchase, you should place a purchase on the stop entry only above the mother bar high. Conversely, if you are aiming to sell, you should place a sell on the stop entry precisely below the mother bar low.
- Sometimes, when support and resistance or trendline breaks with a big candlestick then price again come back inward the key level.
- Additionally, the Inside Bar pattern provides even more accurate signals when clubbed with a technical indicator like RSI.
- Formation of inside bar pattern after the breakout of trendline works best and this breakout strategy gives profitable results.
- Once you have experience, you may be able to trade inside bars on a 4- hour chart frame of time, however, that is the lowest time frame it is suggested to trade an inside bar on.
- No statistics can confirm that the pattern is more preferable in a downtrend.
Candlestick patterns provide a wide range of signals — from continuation and reversal to market hesitation. The two-candle inside bar pattern suggests a period of consolidation or indecision in the market. Traders and analysts use this setup as part of a comprehensive strategy. The inside bar trading strategy is suitable for traders who prefer price action analysis and look for potential trend reversals or breakouts.
Inside Bar Chart Pattern Trading Strategy
This pattern suggests intense buying or selling pressure, potentially leading to either a reversal or an extension of the current trend, depending on the market context. The last step to using the Inside Bar pattern is to always place a stop-loss order. Since Inside Bars can either indicate a breakout or continuation signal, there is no guarantee that the market will move in the direction of your analysis/prediction. Inside bar trading offers ideal stop-loss positions and helps identify strong breakout levels.
How do I identify a valid inside bar pattern?
Eventually, the pair dropped as it broke out of the triangle, which stemmed from the pattern. Some traders use a more lenient definition of an inside bar that allows for the highs of the inside bar and the mother bar to be equal, or for the lows of both bars to be equal. However, if you have two bars with the same high and low, it’s generally not considered an inside bar by some forex traders.
- HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy.
- One of the primary strategies for trading the inside bar pattern involves waiting for a breakout.
- If on a smaller frame of time, like a 1 hour chart, then a daily chart inside bar for Forex will, from time to time, form a triangular pattern.
The $2131 level was the obvious key support in this instance. So, you would have considered taking profits around this area. We also recommend using the Fibonacci retracement tool to manually lock in your gains as the market moves in your direction. So, you have determined how you’ll enter and exit the inside bar pattern.
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. Like just about any forex trading strategy, however, using the inside bar pattern requires practice and careful risk and money management to achieve the best results. The inside bar pattern can be a valuable tool in a forex trader’s arsenal.
Technically, as long as the first candle covers the second candle, then it’s an inside bar pattern. It is regularly utilised on inside bars with bigger mother bars. That is, to say, a golden middle between the high and low of the mother bar. The classic and most widely utilised stop-loss arrangement will be precisely above or below the mother bar high or low. The typical action is to go with 1 pip over or below the mother bar high or low. There is no necessity in trying and figuring out the best distance above, or vice versa below the preceding bar – the trade either performs well, or it doesn’t.
An inside bar is a candlestick pattern where the high and low prices are within the range of the previous candle. This shows a time of market consolidation or indecision among traders. The inside bar is a two-candlestick pattern that signals trend continuation or reversal. The first candle of the pattern is usually large, while the next candle is a small candle with its high and low range contained within the high and low range of the previous bar.