What Is The Inside Bar Candlestick Pattern & How To Trade With It

Forex Trading

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. 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.

Entering an Inside Bar Trade

  1. 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.
  2. This pattern suggests a period of market consolidation or indecision, as traders are unsure about the next market direction.
  3. You just need to remember a few rules to identify the pattern correctly.
  4. An Inside Bar potentially means that the price action recently dominated by the sellers is now weakening.

One important characteristic of the inside bar pattern is its relationship to the prevailing trend. Inside bars that occur within an established trend often indicate a continuation of the trend. In contrast, inside bars that show up at the end of a trend can signal a potential reversal. 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. The inside bar forex trading strategy is the simple price behavior strategy in Forex trading.

Is an inside bar bullish or bearish?

In either case, your stop should be located below the bottom of the range as shown on the image. In the fast-paced world of forex trading, having a reliable and effective price action trading strategy is one of the main keys to success. A strategy that Japanese candlestick chart traders often use is looking for and trading the inside bar pattern. This two-candle pattern can provide valuable trading opportunities when understood and used correctly. One of the primary strategies for trading the inside bar pattern involves waiting for a breakout.

Size of Candles

In this article, we will explore what inside bars are, why they are significant, and various tips and strategies for effectively trading inside bars. You can sometimes trade inside bars as reversal signals from key chart levels. Please note that this should ONLY be tried after you have successfully mastered trading inside bars in-line with the daily chart trend as continuation / breakout plays, as we discussed above.

How to Draw Trend Lines Perfectly Every Time

The only thing that matters is whether the mother bar is bullish or bearish. The formation of the mother bar, in combination with the trend, is what tells you which way to trade an inside bar setup. Notice how the bullish inside bar in the above illustration inside bar trading strategy formed at the top of the mother bar’s range. This is what you want to see in a favorable setup, especially if you are using the more aggressive stop loss placement, which means placing your stop loss below the inside bar rather than the mother bar.

As common as this saying may be, it has never lost its significance in the financial markets, especially when it comes to trading inside bars. Notice how the second candle in the image above is completely engulfed, or contained, by the previous candle. In this case, the bearish candle (mother bar) represents a broader downtrend, while the bullish candle (inside bar) represents consolidation after the large decline.

The Hikkake pattern is confirmed when there is an Inside Bar pattern, a breakout of the inside bar on the next candle, and then a reversal occurs, and breaks thru the opposite end of the Inside Bar. It is important that the breakout thru the opposite side occur within 2-3 bars of the original breakout. Also take note of the three blue arrows at the left side of the image, which shows that the previous three candles on the chart are actually bigger than the inside candle. Therefore, we confirm that the inside candle is also the narrowest range day of the last 4 daily sessions.

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. There are different variations, but the way I determine an inside bar setup is if the inside bar is contained within the range of the mother bar from high to low. In the above GBPUSD H4, the market is already in an existing uptrend with higher highs and lower lows. You can easily identify the 2 candle inside bar trading pattern during the uptrend.

The stop loss would need to be 100 pips away from our entry, and the trade would have easily given us 200 pips or more. Said differently, the previous candle completely “engulfs” the inside bar. Keep in mind that we’re talking about the entire range of the candle (high to low) so we aren’t concerned with the open or close of either bar. Sellers forced a break later that night, at around 1 AM on the day following that bar closing. And the trend then went on an aggressive downside run that I’ve highlighted with a red box. There could be some sub-optimal situations where inside bars print consecutively or, even worse, in a non-consecutive manner amidst chop and range.

The realm of forex trading is a constantly shifting and multifaceted… In the complex world of forex trading, understanding the relationships between… In the vast and ever-evolving landscape of forex trading, mastering the… The key is to be able to understand which levels are most likely to hold and which ones are just random lines on a chart. It will take you through the process of identifying the most significant levels on any chart.

As you may well know, markets spend most of their time consolidating or ranging, so finding a favorable inside bar setup within a trending market can be a challenge. However, when you know what to look for, these setups can be quite profitable. The most significant factor of this https://forexhero.info/ inside bar trading strategy is the small stop loss. In this article we will discuss the identification of the inside bar pattern. 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.