Mastering the Inside Bar: A Proven Forex Strategy for Consistent Profits

Forex Trading

For example, if you are looking to go long, identify the Inside Bar in a bullish market, exit the trade on high, and set a stop-loss close to a low of the bar. Conversely, when going short, find the Inside Bar in a bearish trend, exit the trade on low, and place a stop-loss near the high of Inside Bar. During the initial decline, the price action creates an inside bar candle formation on the chart. The next candle which comes after the inside bar breaks the upper level of the range. As you see, the price begins to reverse afterwards, and within the next two bars, the price decrease leads to a break of the lower level of the range.

Master the Simple Inside Bar Breakout Trading Strategy

We will discuss some examples of how a trader can approach setting up a trade when they see this pattern on their chart. So as an informed price action trader, you should be looking for the break of the inside bar, which would provide a tradeable opportunity in the direction of the break. The inside bar is a two bar candlestick pattern, which indicates price consolidation. In order to confirm this pattern you need to see a candle on the chart, which is fully contained within the previous bar. In this manner, the inside bar candle should have a higher low and a lower high than the previous candle on the chart. When combined with other technical analysis tools, the Inside Bar strategy becomes an even more potent component of a trader’s arsenal, allowing for refined entries and exits.

Inside Bar Trading Techniques

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. Let’s look at our last example where the relative size of the price action inside bar would negate the trade setup based on our profit target. We have an inside bar on the daily chart in a strong downtrend…everything looks good. In conclusion, the Inside Bar strategy stands as a testament to the power of simplicity in the complex world of Forex trading. This pattern, a subtle indicator of market consolidation and potential breakouts, offers traders a versatile tool for navigating the ebbs and flows of currency price trends.

Combining the Inside Bar Strategy with Other Technical Tools

Given that Inside Bars may signal either a breakout or a trend continuation, market movements may not always align with your forecast. Therefore, stop-loss orders are essential for mitigating trading risks. For the most dependable insights, it is advisable to trade the Inside Bar pattern on mid-term time frames, such as the daily chart. These chart pattern offer a broader data set, capturing Inside Bars at critical junctures where the market is more likely to experience a shift. Again, some traders can get so wrapped up in taking trades that they forget to examine the quality of the signal.

How to Identify the Inside Bar Candlestick Chart Pattern in Trading?

  1. Trading with the Inside Bar strategy is a methodical approach that requires a keen eye for detail and a disciplined execution plan.
  2. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.
  3. I share my knowledge with you for free to help you learn more about the crazy world of forex trading!
  4. For that matter, you can use support and resistance levels, a Fibonacci retracement tool, MACD, RSI, and MAs.
  5. The only thing that matters is whether the mother bar is bullish or bearish.
  6. The breakout occurs below the low of the ‘preceding bar’ thus triggering a short entry into the market.

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It’s like not looking in your rear view mirrors before changing lanes on the highway. You need to know what previous price action has done in order to put the odds in your favor. The Inside Bar can be used in a reversal or trend-following trading strategies. However, it may not be sensible to rely too much on this pattern alone as it can give false signals. Instead, a more complete trading strategy is to use the Inside Bar with other technical indicators and good money management.

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. There’s good reason for inside bar trading strategy this, and that reason is mainly because on time frames under the daily chart, inside bars simply grow too numerous to be worth trading. They often provide a low-risk place to enter a trade or a logical exit point.

But, the reality is these can be powerful indicators when they show up and we’ll look at that more deeply in this installment. And when volatility does settle – option premiums become cheaper due to the lower value of VIX, which feeds into the Black-Scholes option pricing model. That’s when traders can use the lower volatility levels to begin to look for breakouts, or straddle plays as they look for volatility to then expand. So, volatility in this case is treated as a cyclical tool that waxes and wanes, and traders will often look to position on the other side of that with the goal of maximum benefit.

In our case the price action breaks the inside range in bullish direction. Conservative traders should consider buying the EUR/USD when the price action closes the next candle above the upper level of the range. Aggressive breakout traders would consider buying when the price reaches a few pips above the inside candle high.

However, technical forex traders can amplify the results if you can validate the pattern near established support and resistance zones. Inside bars are significant because they provide traders with valuable information about market sentiment and potential breakouts. As mentioned earlier, inside bars represent a period of consolidation or indecision. This means that traders are taking a breather and waiting for more information before making their next move. Consequently, when an inside bar is followed by a breakout, it is often a strong signal that the market is ready to move in the direction of the breakout. Inside bars signal continuation or reversals, which makes this trading pattern more complex.