Inside Bar Strategy Tips and Trading Insights

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. In most cases, the development of an Inside Bar indicates a market consolidation which means that the existing trend can reverse in the near future. Identify if there is going to be an upward breakout during an existing bearish market momentum or a downtrend breakout during an existing bullish market momentum. If the currency pair prices diverge from the existing trend before the price consolidates, a reverse price breakout is confirmed. The inside bar comes with a more complex approach to forming trading patterns, as it uses reversal and continuous signals. The repeated breakout may increase the risk of using the inside bar.

• In this case, the bearish candle (mother bar) represents a broader downtrend, while the bullish candle (inside bar) represents consolidation after the large decline.
• But as we already mentioned, the best use of the Inside Bar is with other technical analysis and not on its own.
• If you want to capture a swing, then you can exit your trades before opposing pressure steps in.
• This type of Inside Bar appears at support and resistance levels.

In a trend, the consolidation is triggered when longs decide to begin taking profits (selling). The first and the most important characteristic is, the time frame you use to set up the inside bar is extremely important. As in general, any time frame less than the daily chart should be avoided with this strategy. 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.

Candlestick Patterns You Need to Use in 2023

An astonishing figure that even the most talented of traders are sometimes struggling to achieve. Number 3,4 and 5 are all formed in the middle of the trading range and this makes them non-tradable. From the information provided above, we can see that there were only two places in which the inside bar was tradable. The best thing would be to give an example of both types of markets and how inside bar trading applies to them. As described above, when an inside bar forms, there is a high chance of a final spike (as it occurred above), therefore you must calculate for a wider stop loss.

There’s no doubt that inside bars can be a profitable way to trade the Forex market. After all, it’s a setup that I teach as part of my price action course and one that has served me extremely well since 2009. The only thing that matters is whether the mother bar is bullish or bearish.

Learn more about trading with candlestick patterns

Inside bars signal continuation or reversals, which makes this trading pattern more complex. That is, the strategy is the foundation with the inside bar seen as more of a prompt. A trading strategy consists of many confluences that make a strategy tradeable. Without confluences, you will not be able to make a profit obviously.

Therefore, the inside bar is looked at for a short-term trade (or swing trading) in the counter-trend direction with the goal of holding the trade for less than 10 bars. Sometimes, when support and resistance or trendline breaks with a big candlestick then price again come back inward the key level. When the inside bar forms at that resistance level, it is a clear indication that the market is deciding its future direction. Breakout of the inside bar pattern confirms the direction of the market. If the price breaks high of the inside bar, then it will continue its trend (it will go up). Price will reverse its trend if it breaks the low of the inside bar.

How to identify an inside bar on forex charts

The inside bars in the chart above formed on the GBPJPY daily chart in a choppy market. This sideways price action represents consolidation, which is what you want to avoid when evaluating an inside bar setup. As mentioned previously, the inside bar represents a period of short-term consolidation with low volatility within a trending market. Traders then look to trade breakouts after a new high/low is formed. Its relative position can be at the top, the middle or the bottom of the prior bar.

The inside bar formed in the middle of a trading range in a bullish market which was considered as a continuation. In case you know about this candlestick pattern, you should still consider checking the below article, since you might be able to find information that is not shared elsewhere. 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. Like any other candlestick pattern, the Inside Bar doesn’t give an exact entry and exit points.

Is the inside bar a good trading strategy?

However, if this happens you should look to see if there is an Inside bar failure pattern emerging. In this next section we will take a closer look at the Hikkake pattern, which is an inside bar fakeout. When you see this pattern, you should position https://g-markets.net/ yourself in the market to trade in the opposite direction to the one which you had previously placed. The image demonstrates an inside day with narrow range a.k.a the ID-NR4 Pattern. This formation that I am referring to is the Inside Bar pattern.

Price action is also in a range and there is no obvious trend or support/resistance level. You might have been lucky if your took a long trade, but over time, inside bar trading you’ll lose more of these trades than you win. An Inside Bar (or candle) is a 2-bar pattern where a bar is inside the total price action of the previous bar.

Please be mindful, however, that there is a possibility of a false breakout in this case. Traders could also wait for the candle to close, but this comes with the risk of missing a big move in the market. Our suggestion would be to find whichever method works best for you.

What is most important is that the inside bar trading setup must adhere to pre-defined rules that the trader sets up per his own trading plan. We will discuss some examples of how a trader can approach setting up a trade when they see this pattern on their chart. The inside bar candlestick pattern is often not given enough importance, but I hope with this article to reach more traders who want to learn about it. From the simple bullish/bearish inside bar to the complex Hikkake candlestick pattern, I have walked you through the processes that lead to the formation of this pattern. A) Reversal- once price reaches a major support or resistance level as the two illustrations below show and an inside bar forms at these levels, then we have a reversal of price. The last step to using the Inside Bar pattern is to always place a stop-loss order.

Top characteristics of an Inside Bar strategy

In other words, the Inside Bar has a higher low and lower high than the previous bar. It does not matter if the Inside Bar is bullish or bearish, all that matters is where the Inside Bar prints relative to existing price action. For more information on trading inside bars and other price action patterns, click here.