The Inside Bar pattern is a versatile and effective tool for traders across various markets. Whether you’re trading breakouts, reversals, or trend continuations, understanding this pattern can give you a significant edge. By incorporating the strategies outlined in this guide and practicing disciplined risk management, you can harness the potential of the Inside Bar to enhance your trading performance. Remember, success in trading comes with practice, patience, and continuous learning. A bullish Inside Bar pattern occurs during an uptrend or at a key support level. Traders should look for an Inside Bar that forms after a strong upward move, suggesting that the trend may continue after the consolidation.

• This setup increases the probability of reversal in trend after inside bar breakout.
• MACD is a unique indicator that can be combined with the inside bar pattern.
• This period of consolidation allowed the market to “reset”, or shake out profit takers and attract new buyers for the next leg up.
• The other type of Inside Bar trading signal is the countertrend Inside Bar.

This sideways price action represents consolidation, which is what you want to avoid when evaluating an inside bar setup. An inside bar that forms on the higher time frame has more “weight” simply because the pattern took more time to form. This means more traders were actively involved in its formation, which as a result equals higher capital flows.

Is an inside day bullish or bearish?

One of the key reasons inside bars are important is their ability to act as potential breakout signals. The formation of an inside bar often precedes a breakout in price, either in the direction of the prevailing trend or in a new direction. Traders use inside bars to anticipate potential breakouts and plan their trades accordingly. Volume – Since the inside bar pattern typically marks a period of indecision or uncertainty, the volume on the second candle should ideally be below average.

Inside bar location on chart

No, the colour of the inside bar candle does not make any difference. 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 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.

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• It can indicate a potential pause in the current trend before the price makes a decisive move, which traders can use to anticipate and plan their trading strategies accordingly.
• The market moves from a period of low volatility to high volatility (and vice versa).
• The formation of an inside bar occurs when the high and low of a candlestick are contained within the high and low of the preceding candlestick.
• The indicator highlights this area, reflecting a balance between supply and demand.
• Below is a great example of a bullish inside bar pattern that formed on the Hindustan Unilever daily time frame.

More Trading Tips on the Inside Bar Pattern

An ideal breakout is one accompanied by significant volume, as demonstrated above, which confirms the strength of the move and helps to avoid potential ‘fakeouts’ or false breakouts. Inside bars hold significant importance for traders as they provide valuable insights into market sentiment and potential price movements. Understanding the significance of inside bars can help traders formulate effective trading strategies and make informed decisions. The blue circle on the price graph above shows an inside bar candlestick pattern. See that the highest and the lowest points of the small bullish candle are fully contained within the previous bearish candle.

This indicates a contraction in the price range and a period of consolidation or indecision in the market. The smaller size of the inside bar compared to the previous candlestick suggests a temporary pause in the prevailing trend. The moving average is one of the most straightforward tools for determining the direction of the trend.

When you have an abundance of buyers and sellers, like in the forex market, the signals from candlestick patterns can be strong. Inside bars are one of the many Japanese candlestick patterns traders follow in the forex market. The forex market is one of the largest in the world and therefore, attracts many buyers and sellers. We will focus on price action analysis by observing how the price reacts to these key levels and then taking a position to capitalize on these movements. In this market environment, where the trend did not reverse but instead shifted to a sideways movement, means that market sentiment remains uncertain for this trade.

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 formation of an Inside Bar is deeply rooted in market psychology.

In the silver example agove, the MACD line (blue) is below the MACD signal (orange). This creates red bars on the histogram and suggests the daily trend is considered down. If the inside bar pattern develops below the moving average, then we’ll anticipate a bearish breakout.

Facts about Inside Bar Pattern

The difference between an inside bar candle and an outside bar candle lies in their price range. An inside bar candle is identified when the entire price range (high to low) of a candle is contained within the high and low range of the previous candle. It shows that the current candle’s price action is narrower than the previous one. The double inside bar pattern is a variation of the traditional inside bar. The double inside bar set up is a three candle formation of two inside bars.

We used BTC/USDT data from Binance Futures on a 10-minute timeframe over 100 days. This pattern can occur either due to using a very small timeframe or because the market is in a flat. Select “Inside Bar” from the list, add it to the chart, and click OK. For more details on the indicator and its settings, check the Knowledge Base. When they do this, they create a secondary pattern known as the hikakke pattern, which is even a stronger confirmation that the trade would inside bar candlestick move as anticipated. Many traders place their stop loss just above or below the high of the mother bar, but this is dangerous because the stop can easily be taken out before the trade can progress.