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

Forex Trading

So, as you can assume, there’s no one version of the inside bar pattern. 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. However, it is the trading psychology discipline that truly unlocks the strategy’s effectiveness.

How to Draw Support and Resistance Levels Correctly

These chart pattern offer a broader data set, capturing Inside Bars at critical junctures where the market is more likely to experience a shift. Because moving average breakout already indicates a reversal in the trend of a specific currency pair. Now if an inside bar forms just after the MA breakout, then it indicates the decision zone. Price is deciding either to reverse the trend completely or come back inside the MA to continue its previous trend. Notice how the bullish inside bar in the above illustration formed at the top of the mother bar’s range.

The best time frame for trading inside bars

  1. Sometimes, the second candle may stretch a bit longer and invalidate the pattern during its closing.
  2. On the other hand, swing traders may prefer to analyze daily or weekly charts where Inside Bars can signal more significant trend-following or reversals, with trades that may last several days to weeks.
  3. An Inside Bar must stay completely WITHIN the range of the bar immediately before it.
  4. In either case, your stop should be located below the bottom of the range as shown on the image.
  5. He has a monthly readership of 250,000+ traders and has taught over 25,000+ students since 2008.

To start tracking Inside Bars on your charts, use one of our handy alert indicators. Of course, a trend can be difficult to identify, so be sure that you have a concise definition of what a trend looks like for you. When the high of the previous bar (or candle) is higher than the current bar and the low of the previous bar is lower than the current bar, then current bar is an Inside Bar.

Tools & Features

The inside bar is a two candlestick reversal or continuation chart pattern showing a period of market consolidation. When the inside bar pattern develops at the end of a trend, it can signal a trend reversal. At the same time, if it develops in the middle of the trend, it can potentially signal a trend continuation. The size of the inside bar candles can also provide valuable insights to a forex trader. In general, smaller inside bars indicate a period of tighter consolidation, which in turn suggests an imminent breakout.

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The inside bar pattern itself does not indicate a bullish or bearish bias since it instead only represents a period of consolidation. The subsequent breakout direction determines the bullish or bearish nature of this two-candle candlestick pattern. 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.

However, they can indeed also be used as reversal signals from key chart levels, we will discuss both in this tutorial. Let’s discuss some facts about inside bars first and then I will go over some examples of how I like to trade them. Combining the Inside Bar strategy with other technical analysis tools can significantly enhance a trader’s ability to make informed decisions. For instance, overlaying moving averages on a chart can help identify the prevailing trend, providing context for Inside Bar signals. Traders might look for Inside Bars that form after a pullback to a moving average in a trending market, which can indicate a potential trend continuation.

Additionally, incorporating oscillators like the Stochastic or RSI can offer insights into market momentum and overbought or oversold conditions, further refining entry and exit points. Support and resistance zones on the candlestick charts also play a critical role; an Inside Bar forming near these key levels could signal a strong breakout potential. Spotting an Inside Bar on a Forex chart is akin to uncovering a hidden gem that signals the market’s imminent move. An Inside Bar is characterized by its smaller size in comparison to the previous bar, fully contained within the latter’s high and low range, resembling a bar nestled within the embrace of its predecessor. This pattern typically indicates market consolidation and can be a precursor to a significant breakout. To identify an Inside Bar, traders must scrutinize the price action, looking for a candle that is completely ‘inside’ the range of the previous candle, known as the ‘Mother bar’.

Its relative position can be at the top, the middle or the bottom of the prior bar. Take profit level is calculated by using Fibonacci extension tool in inside bar trading strategy. In the tradingview platform, use the trend-based Fibonacci extension tool. Drag the tool from the high of the big candlestick to the low point and then connect the third point inside bar trading strategy to the high of the inside bar. The same holds true for the bearish inside bar pictured above – the formation at the lower range of the mother bar is more favorable as it provides you with a better risk to reward ratio. Again, this assumes that you are placing your stop loss above the high of the inside bar rather than the high of the mother bar.

I’ll give you a hint…it has to do with profit targets and risk to reward ratios. In the examples provided throughout article, you saw that the standard inside bar and its variations can provide very attractive price action setups. And any trader, regardless of their trading style, can take advantage of and incorporate these patterns into their trading methodology. In addition to identifying trend reversals, inside bars can also signal continuation patterns. A continuation pattern suggests that the prevailing trend is likely to continue after a period of consolidation.

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. This candlestick chart pattern represents a temporary consolidation or pause in the forex market that suggests indecision prevails over the future direction of the market. This situation can in turn indicate a potential continuation or reversal of the prevailing trend once a breakout occurs. The psychological aspect of trading Inside Bars cannot be overstated, as it requires traders to exercise patience and discipline in the face of market uncertainty. The Inside Bar pattern represents a period of consolidation, often testing a trader’s resolve to wait for the right moment to enter the market.

Note once again that we’re only focused on the mother bar’s high and low, which forms the range of that period. When we short the EUR/USD, we would want to place a stop loss order above the upper level of the inside range. As you see in this example, the EUR/USD decreases afterwards making this Hikkake trade a profitable deal.

Of course, this isn’t always the case, but in my experience, it holds true more often than not. This is the ideal scenario for trading a bullish inside bar setup as the market has gained a fresh set of buyers who are ready to push prices higher. Of course the opposite holds true for trading a bearish inside bar after a break of consolidation. Notice how the bullish inside bar above formed after USDCAD broke out from multi-week consolidation. This period of consolidation allowed the market to “reset”, or shake out profit takers and attract new buyers for the next leg up. An inside bar that forms on the higher time frame has more “weight” simply because the pattern took more time to form.