9 Important Tips: Inside Bar Candlestick Pattern

Technically, as long as the first candle covers the second candle, then it’s an inside bar pattern. Moreover, the pattern could be either a trend reversal or continuation chart pattern, depending on the context of the markets. 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. The Inside Bar Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. Even if you do not trade this setup, it can be used as a confirmation when used in conjunction with another trading system.

The upper boundary is the resistance zone, while the lower boundary is the support zone. Trading in the direction of the trend helps increase the chances of a favorable outcome. The pattern could also mean that the market paused to consolidate before continuing to decline. Momentum is an excellent measurement to identify potential weakness in the…

The only thing that you have to take into account when identifying an Inside Bar is the high and the low of the previous bar. As mentioned earlier, InSide Bars can vary in terms of size, and can also vary in range, color, etc. Here are a few types of bars that you will most likely use when utilizing the InSide Bar Strategy.

Instead, it would be best to interpret the pattern differently on the market scenario and decide the next price direction. Still, the inside bar allows you to identify a pause in price action and a good market entry level before the next price movement. 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.

Response to “The inside bar candlestick pattern”

The difference between an inside bar candle and an outside bar candle lies in their price range. No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses. Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more.

Only the breakout of the inside bar decides the direction of the market. After identification of a trade setup, the breakout of the inside bar will decide either to trade that setup or skip that setup. This setup increases the probability of reversal in trend after inside bar breakout. It clearly shows us the indecision because the market is moving inward. The size of every next wave will be shorter than the previous wave. Always remember, successful trading is not just about strategy execution but also includes efficient risk management and maintaining a disciplined trading psychology.

Pin Bar Trading Strategy

Each trader should adjust this strategy according to their trading style and risk tolerance, and thoroughly backtest it before live trading. If you want to master your game, you need to learn how to read the entire price action to understand the broad market https://g-markets.net/ context. They can serve as further confirmation that the price wants to reverse. These indicators are fashioned in such a way that they move between overbought and oversold regions or oscillate about a midline, as the price moves up and down in a range.

You might have been lucky if your took a long trade, but over time, you’ll lose more of these trades than you win. An Inside Bar (or candle) is a 2-bar pattern where a bar is inside the total price action of the previous bar. In other words, the Inside Bar has a higher low and lower high than the previous bar. When this happens the previous bar is known as the mother bar. It does not matter if the Inside Bar is bullish or bearish, all that matters is where the Inside Bar prints relative to existing price action. This is one of the most popular technical chart patterns around and there are several trading strategies that utilize this pattern.

Candlestick patterns consider a combination of many candlestick bars (like 2, 3, or 4 candle bars). However, the inside bar candlestick pattern is formed from a two-candlestick pattern. It involves analyzing the current candlestick bar with the previous bar that was created (i.e. the mother bar).

Common mistakes traders make when trading the inside bar pattern

The breakout occurs below the low of the ‘preceding bar’ thus triggering a short entry into the market. Had this breakout occurred above the high of the ‘preceding bar’ then this can signal a long (buy) entry indicating a potential reversal in trend. Trading against the trend carries more risk which leads to greater caution taken by the trader. As mentioned previously, the inside bar represents a period of short-term consolidation with low volatility within a trending market.

If you are looking for some inspiration, please feel free to browse my best forex brokers. IC Markets are my top choice as I find they have tight spreads, low commission fees, quick execution speeds and excellent customer support. You can notice on the chart below that right after the Inside Bar entrance; the Moving Averages are below the 0 level.

Inside Bar Candlestick Pattern trading strategy

However, they can also form at market turning points and act as reversal signals from key support or resistance levels. They can sometimes form following a strong move in a market, as it ‘pauses’ to consolidate before making its next move. The reliability of an inside bar candle pattern depends on the market context and the timeframe it appears on. It is generally considered a reliable pattern when it occurs at significant support or resistance levels, with higher trading volumes, and in alignment with other technical analysis tools.

• At the same time, if it develops in the middle of the trend, it can potentially signal a trend continuation.
• There are certain parameters/criteria that filter out the best inside bars from the crowd.
• The breakout occurs below the low of the ‘preceding bar’ thus triggering a short entry into the market.
• One of the rallies to the trend line ended with an inside bar.

I hope the above blog about the inside bar has helped you gain an understanding of the inside bar candle setup. Nial Fuller is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught over 25,000+ students since 2008. It is essential to remember that the appearance of the Inside Bar often signifies a serious price move. As you can see in the chart above, there was an extreme market sentiment right after the Inside Bar emergence.

Instead, for my Inside Bar strategy, I prefer for the price to make the reversal move first and then form an Inside Bar. That’s not smart because it’s a low probability trade especially when the market is in a “choppy” range. So, when you see multiple Inside Bars together, inside bar candlestick it’s a strong sign the market is about to make a big move soon. And volatility in the markets are always changing, it moves from a period of low volatility to high volatility (and vice versa). This tells you there are indecision and low volatility in the markets.

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. One of the rallies to the trend line ended with an inside bar. The next pullback ended there with the formation of an inside bar, and the price started climbing again. The Japanese term for that very pattern is the harami or the harami cross — if the second candlestick is a doji.

When the market is trending up, you apply the trend lines at the lows of the series of pullbacks. As you can see, one of the pullbacks to the moving average indicator ended with an inside bar, and the price subsequently started climbing again. Not only does it help you to identify the direction of the trend but can also provide some support or resistance functions. With the Fibonacci retracement tool, you can improve how you trade Japanese candlestick setups. What determines whether the pattern has a bullish or bearish implication is the position of the pattern in the entire price action. Inside bar refers to a double candlestick pattern in which the range of the second candlestick lies within that of the first candlestick.

So, a good solution is to apply an indicator or a tool that works well with the inside bar. For that matter, you can use support and resistance levels, a Fibonacci retracement tool, MACD, RSI, and MAs. The first candle has a tall body, sometimes very large wicks, and is called the mother bar. The second candle has a small body, sometimes having low wicks, and is called the baby candle. The inside bar formation is completed when the second candle closes within the body of the mother candle. Again, learning to identify important support and resistance levels is all a matter of practice.