Master Inside Bar Strategy for Trading Success

The inside bar pattern also gives great breakout trading opportunities, and inside bar candlestick it’s very simple to trade. However, there’s a slight controversy in defining the Inside Bar. Some traders define an Inside Bar based on the high and low of the bar, while others consider the open and close. According to the first definition, an Inside Bar has a higher low and a lower high than the previous bar.

Classical continuation patterns like the flat pattern, the pennant, the triangle, they are all continuation patterns in a market. Because it is within the range of the previous bar highs and lows. All price patterns have a probability of 50% and then you add cost of trading to that strategy and you won’t even beat FD returns.

1. The same holds true for the bearish inside bar pictured above – the formation at the lower range of the mother bar is more favorable as it provides you with a better risk to reward ratio.
2. This was followed by a much smaller bearish candle that resembles a doji, given how close the open and close prices are.
3. Inside days are represented by a candlestick pattern that forms when a security has a daily price range within the previous day’s high-low range.
4. This pattern suggests a consolidation in the stock’s price, indicating some indecision among investors.
5. To avoid false breakouts, combine Inside Bars with trend indicators like moving averages or support and resistance levels.
6. Traders should always watch the support and resistance levels closely.
7. The bullish inside bar setups above formed on the USDJPY daily time frame.

The Inside Bar Trading Strategy Guide

We’re also a community of traders that support each other on our daily trading journey. An inside bar breakout happens when the price goes past the high or low of the inside bar. Traders should look for more volume and speed as signs of a breakout. By doing this, traders can make better decisions, improve their performance, and reduce losses.

Does Trend Matter?

Finally, one of the ideal trade scenarios occurs when the pattern appears after a decisive breakout from established key levels. To enhance our price action analysis, we strongly suggest integrating volume to identify valid breakouts. An ideal breakout is one accompanied by significant volume, as demonstrated above, which confirms the strength of the move and helps to avoid potential ‘fakeouts’ or false breakouts. A daily chart inside bar will look like a ‘triangle’ on a 1 hour or 30 minute chart time frame.

This is why I don’t advocate using the inside bar as your only setup to trade the market. By doing so, you limit your trade potential to the point that you are likely to begin taking subpar setups. It is, therefore, important to treat inside bars as another tool inside your trading toolbox rather than the toolbox itself. Remember that an inside bar represents consolidation after a large move. This is what makes these patterns so lucrative – the fact that we are trading a breakout after a period of consolidation.

The red lines extending from these clusters indicate a resistance zone that proved effective later. The Inside Bar indicator highlights the boundaries of wide candles within which subsequent candles fall, identifying them as inside bars. You are actually taking advantage of traders who are “trapped” from the long breakout. And, other variations are the continuation patterns like the flag pattern, pennant, triangle, etc.

While Inside Bars suggest potential breakouts, Engulfing Bars hint at momentum shifts, making Engulfing Bars more suitable for reversal signals, and Inside Bars ideal for breakout strategies. This pattern signifies a consolidation phase where the market takes a “pause,” often leading to a breakout once the price breaks above or below the Inside Bar. The only thing that matters is whether the mother bar is bullish or bearish. The formation of the mother bar, in combination with the trend, is what tells you which way to trade an inside bar setup.

1. When the price breaks above the high of the Inside Bar, it suggests that buyers are regaining control, often resulting in a continuation of the upward trend.
2. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.
3. Therefore, a trade would anticipate a bearish break below the inside bar pattern.
4. They can be found in various time frames but are more reliable in higher ones like the daily chart.
5. Traders should always be alert to market changes and adjust their strategies to get the best timing for their trades.
6. It suggests a potential reversal or continuation of the current trend.

Take Profit Target

The inside bar here represents a stalemate between buyers and sellers. The subsequent bullish pin bar makes a false breakout of the inside bar and support level. This formation can be regarded as a false breakout of the inside bar. More often than not, a false breakout causes the market to change its direction.

However, breaking the boundaries of an inside bar might only signal an expansion of the consolidation zone. One popular forex trading strategy, which employs pure price action data, is the Inside Bar pattern. This is a two-bar candlestick pattern, where we see a candle on the chart, completely enclosed within the previous bar, representing price consolidation. Inside bars usually have higher lows and lower highs than the previous candles. Unlike other candlestick patterns, the bullish inside bar is not defined by the color of its first or second candle. In fact, the “bullish” nature of an inside bar has nothing to do with the candles’ colors and everything to do with the pattern’s position on the chart.

In the EURUSD example above, then the inside bar pattern appeared, the RSI value was at 40 exhibiting a weak price trend. This written/visual material is comprised of personal opinions and ideas and may not reflect those of the Company. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions.

However, if I see the second candle as much shorter than the first, for example, less than half its length, I will treat it like an Inside Bar Setup. An Inside Bar potentially means that the price action recently dominated by the sellers is now weakening. The information on market-bulls.com is provided for general information purposes only.

An inside day occurs when the candlestick of one trading day’s high and low fall within the boundaries of the prior day’s or days’ highs and lows. An inside day in technical analysis is a price chart pattern where the high and low of a security are within the range of the previous day’s high and low. A Three-Bar Inside Bar Pattern is a rare trading scenario where three consecutive candles (bars) are fully contained within the range of the previous candle. This pattern highlights an even greater level of consolidation and market indecision compared to a single or double inside bar. Inside bars can lead to losing trades if there are false breakouts — when the price moves out of the inside bar range but then quickly reverses.