The Inside Bar Trading Strategy Guide

In essence, the inside day candlestick has the same structure and attitude as the regular inside bar, but it is considered more reliable due to the fact that each candle encompasses how to trade inside bar a full day of trading activity. Generally, the stop loss would go on the other side of the mother bar. So if you took a short signal, the stop loss would go above the mother bar.

While they can be used in both scenarios, inside bars as continuation signals are more reliable and easier for beginning traders to learn. Turning-point, or inside bar reversal signals, are best to leave alone until you have some solid experience under your belt as a forex price action trader. Since the Inside candle on the chart is a sign of a consolidating market, we can draw a horizontal support and resistance level around this range in anticipation of a future breakout. When the price exits the inside bar range, we expect that the price action will continue to move in the direction of the inside bar breakout.

More Indicators and Chart Patterns Explained

Had this breakout occurred above the high of the ‘preceding bar’ then this can signal a long (buy) entry indicating a potential reversal in trend. Trading against the trend carries more risk which leads to greater caution taken by the trader. 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.

• It will draw real-time zones that show you where the price is likely to test in the future.
• This sort of bar setup means that the high of the current candle is lower than the high of the previous candle, and the low of the current candle is higher than the low of the previous candle.
• However, they can also form at market turning points and act as reversal signals from key support or resistance levels.
• Forex traders should pay close attention to the context in which the inside bar pattern forms to determine its significance and to get a better sense of its possible breakout direction.
• Furthermore, occasionally it may appear inside another chart pattern formation, such as the three inside-up pattern when the first two candles are in fact inside bars.
• All information on this site is for informational purposes only and is not trading, investment, tax or health advice.

In each case, it would signal that the consolidative range is ending in favor of a downward price movement. A trader could prepare to enter a short position, and put in a stop loss above the high point of the pattern as shown on the image. When the price action completes an inside candle on the chart, you should mark the low and high of the Inside Bar consolidation range. 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. By learning to recognize this important candlestick pattern when it occurs on exchange rate charts, currency traders can better anticipate future exchange rate movements and make more profitable trading decisions. During the initial decline, the price action creates an inside bar candle formation on the chart.

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The most logical time to use an inside bar is when a strong trend is in progress or the market has clearly been moving in one direction and then decides to pause for a short time. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. This is the guide to inside bar and support/resistance trading strategy. For example, the market will tend to reverse or continue its direction from a resistance level.

I prefer smaller and “tighter” inside bars that don’t have really large mother bars…this shows more ‘compression’ and thus a stronger potential breakout from that compression. If you are a beginner or struggling trader, I suggest you avoid inside bars with big mother bars for now, see the previous example chart above for an example of an inside bar with a big mother bar. We can also see a good example of an inside bar that acted as a reversal or turning point signal. When you discover an inside bar breakout on the chart, you will most likely want to trade in the direction of the breakout. The price action might reverse direction and quite possibly could break the range of the pattern from the opposite side.

Bonus: Inside Bar price action analysis

This strategy is composed of a fakey setup, and it has a higher winning ratio if it is traded with the trend. For example, trendline and support/resistance breakout represents trend continuation. But sometimes, after the breakout, the price again closes inside the key level. Here’s another example of trading an inside bar against the recent trend / momentum and from a key chart level. In this case, we were trading an inside bar reversal signal from a key level of resistance. Also, note that the inside bar sell signal in the example below actually had two bars within the same mother bar, this is perfectly fine and is something you will see sometimes on the charts.

You might have been lucky if your took a long trade, but over time, you’ll lose more of these trades than you win. When looking for these types of trades, you first want to identify a strong trend. You can use moving averages, a momentum indicator, or simply just look a the price action to see strength of the trend. This is one of the most popular technical chart patterns around and there are several trading strategies that utilize this pattern.

The best time frame for trading inside bars

If you’re looking to maximize your weight to value ratio, be on the lookout for smaller valuables like desk ornaments, antiques (especially from Earth), and contraband. This can be done both indoors and outdoors, so it can help a lot when you have a tricky objective you just can’t seem to locate. The scanner also highlights items that you can pick up, which can help you find new things to sell on the black market if you’re feeling a bit on the “criminal” side of things. Ideally, we want to see the inside bar form within the upper or lower half of the mother bar. The trading room is for educational purposes only and opinions expressed are those of the presenter only. All trades presented should be considered hypothetical and should not be expected to be replicated in a live trading account.

• You can apply plenty of trading strategies when trading inside bars.
• So, if you trade a small range Inside Bar, it means volatility is low and there’s a good chance it could expand in your favour.
• In order to confirm the Inside Day / Narrow Range of the last 4 days ( ID NR4 ) pattern, you will need to have and Inside Day Candle, which is also the narrowest Range Candle within the last 4 days.

In general, smaller inside bars indicate a period of tighter consolidation, which in turn suggests an imminent breakout. On the other hand, larger inside bars tend to represent a more significant pause in the market and can lead to more substantial exchange rate movements once a breakout occurs. Analyzing the size of the two candles that form the inside bar pattern can also help currency traders better gauge the strength of potential breakouts.

Inside Bar trading strategy — Catch the trend

I have been wondering how best to trade inside bars, and you have explained it so well. So, if you trade a small range Inside Bar, it means volatility is low and there’s a good chance it could expand in your favour. Clearly, if you want to trade the breakout of an Inside Bar, you’d want to go with the small range one. So, https://g-markets.net/ a better way to set your stop loss is 1 ATR below the low of the Inside Bar (for long trades) — so your trade has more “breathing room”. The Hikkake Pattern can be traded the same way you trade an Inside Bar (catch the reversal or catch the trend). So, you go long when the price breaks above the highs of the Inside Bar.

Finally, remember to use appropriate risk and money management techniques. Keep in mind that you can make almost any line fit some sort of trend or support/resistance level. Try it…just draw a random horizontal line somewhere on your chart. We see this on longer timeframes when price forms a “box,” or a tight range. Now, don’t worry about how to set your stop loss or trade management because we’ll cover that later. In a strong trending market (when the price is above 20MA), the pullback is shallow.