In this lesson, we’re going to discuss the five characteristics of a profitable inside bar setup. But before we do that, let’s first take a look at how an inside bar forms and what the pattern represents. Truth is, a favorable inside bar setup doesn’t come around often.

Conservative traders should consider buying the EUR/USD when the price action closes the next candle above the upper level of the range. Aggressive breakout traders would consider buying when the price reaches a few pips above the inside candle high. In either case, your stop should be located below the bottom of the range as shown on the image. In the realm of technical analysis, the Inside Bar candlestick pattern stands out as a subtle yet powerful signal for traders. This pattern, often encountered across various time frames and markets, plays a crucial role in indicating both continuation and potential reversals.

When this pattern forms at the top of an uptrend, it is considered a bearish reversal signal, and when it forms at the bottom of a downtrend, it is considered a bullish signal. 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.

Reversal Signal

Traders should exercise patience and wait for high-probability setups where inside bars occur near key support or resistance levels or within established trends. Quality over quantity should be emphasized to avoid taking unnecessary trades. One common mistake is trading every inside bar without considering the overall market context. Inside bars need to be analyzed in conjunction with other technical analysis tools and indicators to confirm their significance. Placing trades solely based on inside bars without considering the broader market conditions and trends can lead to poor trading decisions. Second, relying solely on inside bar setups is unreliable, especially for beginners.

The Inside Bar Pattern: Identification and Trading Strategy

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. 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. However, if this happens you should look to see if there is an Inside bar failure pattern emerging. In this next section we will take a closer look at the Hikkake pattern, which is an inside bar fakeout.

Inside Day Breakout

This idea piggybacks off of number four above, where the inside bar forms in the upper or lower range of the mother bar. Before starting Trading Heroes in 2007, I used to work at the trading desk of a hedge fund, for one of the largest banks in the world and at an IBM Premier Business Partner. Regardless of how you define a trend, spend a lot of time in Forex Tester or using screenshots to look at many different types of trends. Make sure that your method of identifying a trend really does give you an edge. To get notifications when Inside Bars print on your MetaTrader chart, you can use one of our handy alert indicators.

Bonus: Inside Bar price action analysis

The inside bar pattern can be a very powerful price action signal if you understand how to trade it properly. Matching lows and highs are acceptable, however, the inside bar’s range must not be outside of the mother candle by even 1 point. As the name suggests, an inside bar chart pattern engulfs the inside of a large candle, some call it a mother bar. It’s a pattern that forms after a large move in the market and represents a period of consolidation. 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. The Inside Bar is a two-bar price action trading pattern where the second bar (the ‘inside bar’) is completely contained within the range of the previous bar (the ‘mother bar’).

• When we short the EUR/USD, we would want to place a stop loss order above the upper level of the inside range.
• It’s a valuable tool for traders, offering insights into market trends.
• Traders should exercise patience and wait for high-probability setups where inside bars occur near key support or resistance levels or within established trends.
• The way that many traders use this type of Inside Bar is to enter on a break above or below the Inside Bar.
• This pattern is characterized by a high that is lower than the mother bar’s high and a low that is higher than the mother bar’s low.

The second candle plays both the part of an inside bar to the first candle AND as the mother bar to the third candle. 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. In a strong trending market (when the price is above 20MA), the pullback is shallow. Once you install the platform, you will automatically get the free START plan, which includes cryptocurrency trading and basic features.

The significance of the pattern may vary depending on the timeframe being observed and its relevance to the overall market trend. Another characteristic of an inside bar is its ability to act as a potential breakout signal. Traders often interpret the formation of an inside bar as a precursor to a price breakout, either in the direction of the preceding trend or in a new direction. An inside bar exhibits several distinct characteristics that traders should be aware of in order to identify and interpret this pattern correctly. Understanding these characteristics can help traders make more informed trading decisions based on inside bar formations. Traders often see the formation of an inside bar as a signal of an impending breakout or continuation of the existing trend.

Price is deciding either to reverse the trend completely or come back inside the MA to continue its previous trend. A combination of the inside bar and moving average breakout makes a perfect breakout trading strategy. In the examples provided throughout article, you saw that the standard inside bar and its variations can provide very attractive price action setups.

As shown, the asset is moving and bouncing back within our identified price range or boundaries. In this scenario, we recommend utilizing the inside bar pattern only when it occurs near these key levels. Let’s examine our first example to illustrate that an inside bar can be considered a bullish variant based solely on its position on the chart, rather than its color. First, a long-bodied red candle, which serves as the pattern’s first candle (the mother bar), formed. This was followed by a much smaller bearish candle that resembles a doji, given how close the open and close prices are. By recognizing inside bar patterns, traders can make better decisions.

Help & Support

So, in a bullish trade, your stop loss will be at the low of the mother candle. And in bearish trade, your stop loss will be at the high of your mother candle. If the mother candle is unusually big, however, you may place your stop loss at the 50% level of the complete candle range. Keep in mind that you can make almost any line fit some sort of trend or support/resistance inside bar candlestick level. Try it…just draw a random horizontal line somewhere on your chart. There are 2 basic types of Inside Bars that traders use to enter trades.

• For most traders, the daily chart is preferred, while others might opt for shorter time frames (for scalpers or day traders) or longer time frames (for position traders).
• Stop-loss orders are typically placed above the high or below the low of the inside bar to protect against potential losses.
• Today we will discuss a powerful candlestick formation which can often precede a sharp price move.
• When you discover an inside bar breakout on the chart, you will most likely want to trade in the direction of the breakout.
• The chart on the right is a 15-minute footprint, showing how the bullish breakout at the 53,200 level unfolded.

If you have been trading for any length of time I’m sure you have heard this one many times. 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. HowToTrade.com helps traders of all levels learn how to trade the financial markets. Even if you do not trade this setup, it can be used as a confirmation when used in conjunction with another trading system.