Inside Bar Pattern Explained

As mentioned above, when trading the Inside Bar chart pattern you need to look for the mother bar or candle, followed by the smaller candle, called the baby bar. 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. So, a good solution is to apply an indicator or a tool that works well with the inside bar. For that matter, you can use support and resistance levels, a Fibonacci retracement tool, MACD, RSI, and MAs.

Trading Inside Bar Continuation Pattern

False breakouts can occur which lessens the reliability of the inside bar as an isolated pattern which is why traders prefer using the inside bar as part of an overall forex trading strategy. That is, the strategy is the foundation with the inside bar seen as more of a prompt. Some traders consider it a continuation pattern though a breakout in the opposite direction is possible too. After price has trended up (or down) for an extended period, the pause in price movement (represented by the inside bar) precedes a reversal of the trend. 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.

Inside Bar Pattern Strategies, Tips, and Techniques

  1. For example, you may see the Inside Bar candle pattern develop, but it seems to be testing the range of resistance or support.
  2. Many traders love to trade Inside Bars at market structure (like Support and Resistance).
  3. Traders With Edge Limited does not act as or conduct services as a custodian.
  4. Therefore we may encounter a scenario where the high or low of our inside bar breaks, but the price action lacks the strength to close above that key level.

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. This causes the market to pull back, where new buyers have to take charge in and buy, which keeps prices elevated. Inside bar pattern continues for days, weeks or even months until new buyers are able to once again outweigh the sellers and drive the market higher.

The Bearish Break

This strategy does not work in a choppy market or sideways market as you will be easily stopped out. As the name suggests, an inside bar chart pattern engulfs the inside of a large candle, some call it a mother bar. It’s a pattern that forms after a large move in the market and represents a period of consolidation. If seen, a favourable Inside Bar setup can be taken advantage of with the right accompanying information and risk management to create positive trades. A breakout above or below the Inside Bar’s range serves as a signal to enter a trade, anticipating a price movement in the direction of the breakout. As an entry strategy, traders look for Inside Bars in trending markets, interpreting them as a pause before potential continuation.

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Finally, take profit is placed at the highest level of the last swing price. Again, learning to identify important support and resistance levels is all a matter of practice. Bull market trading strategies offer best practice techniques to consider when inside bar trading strategy bull trading. Although these strategies are based on past performance, they do not guarantee future results. With us, you’ll trade using leverage, meaning that you’d only need to commit an initial deposit, known as margin, while getting full exposure.

After all, it’s a setup that it teaches as part of the price action course and one that has served extremely well. An inside bar that forms on the higher time frame has more “relevant” simply because the pattern took more time to form. Keep reading to find out how to used these extremely useful Inside Bar candlestick patterns can be used to get even more information when trading. 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.

During a bullish inside bar candle pattern the entry is above the high of the second candle. You can place the stop loss below the second candle’s low.Similarly, during a bearish inside bar trading strategy the entry point is at the low of the second candle. A bullish inside bar is a two-candle pattern where the second candle is completely engulfed by the previous candle’s range. The pattern signifies that the market is consolidating, potentially indicating a reversal or continuation of the current trend. For this reason, it is often advised to maintain strict risk management practices when trading even the most basic inside bar strategies.

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Matching lows and highs are acceptable, however, the inside bar’s range must not be outside of the mother candle by even 1 point. It is not the best pattern when markets are volatile or experiencing choppy price movement, as you’ll see many rallies, sell-offs and period of consolidation. 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.

As the trades result with a good risk reward ratio, trading losses due to false signals are lower. The reward offsets the risk significantly and enhances the end result in this trading strategy. An Inside Bar formation right after a price breakout in the current trend provides the most accurate signals. This is because it indicates that the current trend is going to end, and the market will reverse. This enables traders to place short orders during an existing uptrend and long orders during an existing downtrend.

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