Conversely, if a bullish Outside Bar forms during a downtrend, it might indicate a possible bullish reversal. 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. The ability to maintain patience, to wait for high-probability setups, and to manage emotions is what distinguishes successful traders in the long run. The final and crucial step in leveraging the Inside Bar pattern is to always set a stop-loss order.

TechBerry Review: Shaping the Future of Forex and Crypto Investments

But, it’s more powerful since breakout traders got caught on the wrong side of the move (and their stop orders would push the market in your favour). The inside bar setup is capable of producing consistent profits, but only to the traders who mind the five characteristics discussed above. In my experience, the smaller the inside bar is relative to the mother bar, the greater your chances are of experiencing a profitable trade setup.

We’ll Make You A Smarter Trader For Free

Now, don’t worry about how to set your stop loss or trade management because we’ll cover that later. So, when you see multiple Inside Bars together, it’s a strong sign the market is about to make a big move soon. Now, depending on the close of the Inside Bar, this could represent indecision or a reversal in the markets. This tells you there are indecision and low volatility in the markets.

• The next candle which comes after the inside bar breaks the upper level of the range.
• This happens when price breaks the inside bar high or low in the direction of the trend.
• However, if I see the second candle as much shorter than the first, for example, less than half its length, I will treat it like an Inside Bar Setup.
• The Inside Bar Pattern is broken when the price breaks the parent bar in the setup shown previously.
• The two simplest and most common strategies to trade the inside bar are the inside bar breakout and the inside bar reversal strategy.

Risk Control Methods

Often times during this pause phase price will produce an inside bar. Quite often after a strong move in one direction we will see an inside bar form. For the inside bar to be structurally correct we need to see the range of the candle be completely inside that of the housing candle. Matching lows and highs are acceptable, however the inside bars range must not be outside of the housing candle by even 1 pip. An inside bar or inside candle (acronym IB) is a pattern made up of a minimum 2 candles/bars.

The two simplest and most common strategies to trade the inside bar are the inside bar breakout and the inside bar reversal strategy. Inside bars formed on higher time frames will hold more weight compared to inside bars formed on smaller time frames. If an inside bar forms at a swing point and major support or resistance area, then it could be signalling that the steam has run out of the current move and a reversal is about to play out. Once you learn how to identify this pattern, then you will very quickly start seeing it everywhere. You will see it in many different markets and on all of your different time frames. The trick here is to distinguish between an inside bar in congestion and one that is not.

There are five things you want to look for when evaluating any inside bar pattern. It’s mostly due to the fact that this particular strategy requires a strong trend in a market that has room to run. To get more practice, draw major levels on all of your charts, then go back to them later and see if price ended up respecting those levels.

Is the Inside Bar Bullish or Bearish?

Stocks, for instance, have a habit of going in one direction for longer than forex pairs. As a result, you may often get away with placing your take-profit target a little farther away from your entry in the stock market than in the forex market. Inside Bar is a bar having its body and wicks contained entirely within the range of the previous (mother) bar. The inside bar’s High lies lower and Low is located higher than the mother bar’s ones.

But that’s okay because by the time you finish this lesson you will have a firm grasp of not only how to identify favorable inside bar setups, but how to trade them for a profit. Stop blowing up accounts with data-based stops, position sizing, and loss limits. Previous day’s range breaks predict session direction with 67% accuracy on YM — stop using them as reversal levels. Inside bars on SPY behave differently than those on QQQ, individual stocks, or futures. Always check the specific data for your chosen day trading instrument.

In the vast and ever-evolving landscape of forex trading, mastering the… In the dynamic world of financial markets, adopting a trading style… In the competitive world of forex trading, selecting a reliable broker… For long position, set the stop-loss just beneath the Inside Bar’s lowest price point.

• When the market is trending up, you apply the trend lines at the lows of the series of pullbacks.
• In the case of a short position, place your stop loss order above the high of the preceding swing or above the mother bar’s high — but this carries a higher risk of being stopped out.
• In order to properly explain relative size, we need to discuss how to enter an inside bar trade and where to place our stop loss.
• For more information on trading inside bars and other price action patterns, click here.

On the other hand, any timeframe longer than this may be too spread out for the Inside Bar pattern to provide ideal market continuation or reversal signals. As you can see, previous support and resistance levels play an important role when determining whether an inside bar is worth trading. So, what this means that relative size inside bar trading strategy of the inside bar to the mother bar is important, but support and resistance levels are equally important.

Often Inside Bar trades can lead to a prolonged impulse move after the breakout, so employing a trailing stop after price has moved in your favor is a smart trade management strategy. Trading with the Inside Bar strategy is a methodical approach that requires a keen eye for detail and a disciplined execution plan. It’s crucial to consider the overall market trendline and other contextual factors, as Inside Bars can signify both reversal and continuation patterns. The relative dimensions of the Inside Bar compared to the Mother Bar can greatly influence the precision of the trading signal. A diminutive Inside Bar, nestled snugly within the confines of the Mother Bar, often suggests a stronger and more reliable market signal. This is my preferred approach as you’ll enter the trade as the price moves in your favour — but there’s a possibility of a false breakout.

It is also one of the most frequently seen patterns that appear regularly in any market condition. So, as you can assume, there’s no one version of the inside bar pattern. Using inside and outside bar patterns alongside key indicators can create a strong trading approach. Outside bars are useful for identifying possible market reversals, especially after extended trends. For example, a bearish outside bar following a strong uptrend might suggest the market is losing steam and could reverse.

These formations can help you identify consolidation, volatility, and breakout opportunities. The Inside Bar pattern provides the most reliable signals when traded on a medium-term chart like a daily chart. This is recommended because, on a medium-term chart, Inside Bars have a larger sample size and occur only at the actual levels where the market can actually reverse. Additionally, the Inside Bar pattern provides even more accurate signals when clubbed with a technical indicator like RSI. As mentioned above, it’s ideal of the inside bar forms near the pin bar’s nose (real body). Inside bars represent a simple yet powerful price action pattern that you can add to your day trading toolkit.