The Inside Bar Trading Strategy Guide

For newer traders, perhaps the best approach is to treat inside bars like any other candlestick pattern – that is, locate them at key areas on the chart and trade them conservatively. Such an approach usually calls for trading a bullish inside bar at the break of the high and a bearish inside bar at the break of the low. As price falls into solid long term support, an informed technical trader should not be surprised to see a potential bounce off the area. What then does indecision, as represented by the marked inside bar tell us about the bearish momentum that lead us to this support level? As the inside bar breaks to the upside (price breaks the high of the inside bar) we have price finding support at the level which should really not be a surprise at all. Notice also that instead of just temporary holdup, the inside bar did trigger the reversal of much of the bearish trend up until that point.

Using Inside Bar Strategy in Forex Trading

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 most traders. Keep in mind that when day trading, the moves to the profit targets won’t be as large. In that case, you may want to go to a higher time frame and see out other highs (in the case of longs) that may be taken out.

But in intra-day markets traders’ interests can be determined by a host of other factors too that may not tie into the technical aspects of trading. Maybe they don’t have the appeal of pin bars and engulfing candles, or it could be because it’s a little more complicated to understand than other price action signals. Instead, we have a strong bearish candlestick present itself first which indicates selling coming into the market.

Identify potential breakout level

It’s about knowing the best times to buy and sell by understanding the market and using reliable indicators. Waiting for clear signs before acting on an inside bar pattern helps avoid early mistakes. Knowing how to trade inside bars means spotting these patterns and guessing where the market might go next. The inside bar pattern also gives great breakout trading opportunities, and it’s very simple to trade. You can see that buyers were trapped at the top of the previous candle. The red clusters on the inside bar suggest increased selling activity around the level, which generally indicates a preference for short positions.

Trading Inside Bars Against the Trend, From Key Chart Levels

1. Market sells confirm aggressive selling pressure breaking out of the consolidation zone formed by the double inside bar.
2. Price consolidation occurs in uptrends, when market players who are long start selling for profits.
3. Consider going long in the direction of the Outside Bar’s closing.
4. 5 — a bearish breakout of the previous candle’s low, which is an inside bar, is accompanied by bright red clusters on the footprint chart, indicating seller activity.
5. The prior bar, the bar before the inside bar, is often referred to as the “mother bar”.

These two signals, when combined, result in either a ‘pin bar combo’ pattern or an ‘inside bar – pin bar combo’ pattern. An Inside Bar pattern following a price breakout in the current trend provides the most reliable signals. This formation suggests the potential end of the current trend and a forthcoming market reversal. This setup allows traders to place short orders during an uptrend and long orders during a downtrend. This formation indicates a period of market consolidation or indecision but does not necessarily signal a trend reversal.

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. Also in December, an inside bar in a longer time frame became a signal of consolidation in a shorter time frame. At the same time, its configuration indicates the formation of the Expanding wedge pattern. A trader familiar with this pattern had no difficulty in opening long positions at 50% retracement of wave 4-5. In a range trading strategy, we are looking to ideally position before the breakout of the consolidation pattern inside of a basing formation.

1. If you look at the hourly chart, you will probably find several inside bars in one day, whereas on the daily chart, you can only find one inside bar in an entire day.
2. It is not a complicated setup to trade but there is one trading tip I will give after a simple example.
3. We’ll see how to use the inside bar strategy with other technical patterns.
4. At the same time, few people think about how the cyclical nature of the market shows itself in a chart.
5. You can also activate the Free Trial at any time, giving you 14 days of full access to all the platform’s features.
6. Spotting the main trend is key when using the inside bar strategy in forex.

The Inside Bar Pattern is one of the most significant candlestick patterns used in technical analysis. The pattern has stood the test of time across many markets—Forex, stocks, indexes, and cryptocurrencies. Its relative position can be at the top, the middle or the bottom of the prior bar. This is an example of a bearish inside bar setup where there are multiple candles contained with the range of the mother candle. The bearish candle with an up arrow pointing to it, is the first candle which breaks the low of the mother candle, if you were trading this setup you would have been entered into your trade at this point.

How is the inside bar strategy used in forex trading?

And in a bearish trend, you put your sell-stop order at the low of the mother candle. This way, you can take advantage of the breakout as it happens. Use footprint charts and other tools to professionally analyze buying and selling dynamics. This will help you build a trading strategy based on inside bars and other classic patterns.

By doing this, traders can make better decisions, improve their performance, and reduce losses. HowToTrade.com helps traders of all levels learn how to trade the financial markets. Generally, the longer the time frame, the better the signals the inside bar pattern provides.

However, day traders can use lower time frames, but these may produce more false signals. Inside Bars are widely used in technical analysis due to their simplicity and potential to catch strong price movements. They can be found in various time frames but are more reliable in higher ones like the daily chart. 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.

At the same time, few people think about how the cyclical nature of the market shows itself in a chart. 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.

As you’ve probably gleaned from its name, this trading system hunts for inside bar formations, which are dual candlestick patterns in which the second bar is completely contained by the high and low of the first bar. However, at major support and resistance levels the indecision represented by inside bars can also be very telling, and in some cases a viable trigger for a reversal trade as well. Like other prominent candlestick formations, inside bars are best located and traded at key locations and price points where other supporting factors can help validate a high probability trading opportunity. When using the inside bar trading strategy, it’s crucial to set stop-loss orders and control how much you trade. Experts suggest using a risk-reward ratio that fits your trading goals. It enables you to test trading inside bars and other patterns with footprint charts and/or other inside bar forex indicators, all without risking real money.

It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. Our platform may not offer all the products or services mentioned. An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar. The size of the Inside Bar with respect to the mother Bar depicts how accurate the bar setup signal will be. The smaller the size of the Inside Bar compared to the Mother Bar, the higher the chance of the market signals being accurate and vice versa.