How to Use Inside Bar Trading Strategy

Some traders consider it a continuation pattern though a breakout in the opposite direction is possible too. After price has trended up (or down) for an extended period, the pause in price movement (represented by the inside bar) precedes a reversal of the trend. Therefore, the inside bar is looked at for a short-term trade (or swing trading) in the counter-trend direction with the goal of holding the trade for less than 10 bars. In the example below, we are looking at trading an inside bar pattern against the dominant daily chart trend. In this case, price had come back down to test a key support level , formed a pin bar reversal at that support, followed by an inside bar reversal. Note the strong push higher that unfolded following this inside bar setup.

Once this prior consolidation resistance is broken the Inside Bar can be considered to be in a bullish breakout. The target for this breakout is the high of the previous candlestick. As price moves within the range be cautious about the potential for a reversal pattern to form. Today we will discuss a very powerful candlestick formation known as Inside Bar pattern which is basically two-bar price action strategy. Here we will discuss the structure of the inside bar setup, the psychology behind it and some inside bar trading strategies when to enter or avoid the trade. Furthermore, occasionally it may appear inside another chart pattern formation, such as the three inside-up patterns when the first two candles are in fact inside bars.

To confirm that, we used a basic moving average indicator, and, as seen in the chart, the crossover occurs precisely at the formation of the mother candle (the first candle). The first way to trade the inside bar pattern is in a ranging market. Below, we will show you two market examples to trade the inside bar pattern – range and breakout trading strategies.

1. If you understand bullish and bearish engulfing candle pattern then you can spot it right away.
2. Not all breakouts are this strong, but this is a good example of a scenario when a range lead to a big breakout.
3. Inside bar pattern continues for days, weeks or even months until new buyers are able to once again outweigh the sellers and drive the market higher.
4. Remember, candlestick patterns are not foolproof signals, and the Inside and Outside Bars should be used as part of a comprehensive trading strategy.
5. You might have been lucky if your took a long trade, but over time, you’ll lose more of these trades than you win.

The inside bar candle pattern is one of the most frequently occurring chart patterns in financial markets. It is called an inside bar because the first candle completely covers the second candle, which is a chart formation that helps traders predict the next price movement. As the price action continues, watch for any signs of buying pressure in the current candle, that being the candle following the close of the inside bar. Should the market equilibrium give way to buying pressure the most important level to break is the inside bar high.

Inside Bar Pattern Strategies, Tips, and Techniques

For example, the inside bar pattern could also be formed with a large first candle and a second tiny Doji candle. Technically, as long as the first candle covers the second candle, then it’s an inside bar pattern. inside bar trading strategy All information on this site is for informational purposes only and is not trading, investment, tax or health advice. The reader bears responsibility for his/her own investment research and decisions.

When to enter the trade and when to avoid the trade?

The formation of the bearish break pattern follows the same process as the bullish breakout strategy. The major difference between the two setups is that we are looking for weakness. Following the choppy market action of the inside bar, we closely monitor the lows of the inside bar candle.

This causes the market to pull back, where new buyers have to take charge in and buy, which keeps prices elevated. Inside bar pattern continues for days, weeks or even months until new buyers are able to once again outweigh the sellers and drive the market higher. Stay tuned for future posts, where I share actual Inside Bar trading strategies and test each one to show you what works and what doesn’t. It will take you through the process of identifying the most significant levels on any chart. Generally, the stop loss would go on the other side of the mother bar. So if you took a short signal, the stop loss would go above the mother bar.

Choppy Price Action

Once our inside bar has formed we must consider the fact that market reversals can occur on any timeframe. Therefore we may encounter a scenario where the high or low of our inside bar breaks, but the price action lacks the strength to close above that key level. This can be considered a failed breakout and such reversals can see a significant shift in market sentiment. This is because an attempt at directionality was made, and failed, https://g-markets.net/ and the market has now lost confidence in that break and looks for action in the opposing price range. The inside bar pattern should be considered a valuable tool in the world of price action trading, offering valuable insights into potential trading opportunities. Before we dig into the details of the inside bar pattern, it’s essential to have a clear understanding of what an inside bar is and how to identify it on a price chart.

False Breakout Trading Strategy

Sometimes, when support and resistance or trendline breaks with a big candlestick then price again come back inward the key level. The inside bar strategy 2 is composed of a trendline breakout and an inside bar breakout. A trendline is made up of at least three consecutive bounces of the price that make it a key level.

For this reason, it is often advised to maintain strict risk management practices when trading even the most basic inside bar strategies. One popular strategy is to buy the inside bar break and immediately set your stop. Next, assuming the price action continues as your thesis intended, move your stop to the high or low of the inside bar. This basic trade management strategy can prevent you from being trapped in an inside bar. It is important to note that this article only covers the basics of inside bar strategies. During a bullish inside bar candle pattern the entry is above the high of the second candle.

Pin Bar and Inside Bar Combo Trading Strategy

Or, you can wait for the candle to close — but you risk missing a big move. The Hikkake Pattern can be traded the same way you trade an Inside Bar (catch the reversal or catch the trend). So, you go long when the price breaks above the highs of the Inside Bar. But for now, I want to share with you a “special” Inside Bar so you can profit from trapped traders. Now, don’t worry about how to set your stop loss or trade management because we’ll cover that later.

Clearly, if you want to trade the breakout of an Inside Bar, you’d want to go with the small range one. So, when the price “stalls” after a pullback (in the form of an Inside Bar), you want to enter as soon as the price resumes in the direction of the trend. Now, depending on the close of the Inside Bar, this could represent indecision or a reversal in the markets. Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all.

Ideally, the Inside Bar should form within the Mother Bar’s upper or lower half. The Inside Bar pattern works best when the market is currently trending. The stronger the trend, the easier it is for the pattern to provide a reliable signal. If the market is not showing any certain trend, the Inside Bar pattern will not be able to form due to the uncertain market movement.