The Inside Bar Trading Strategy Guide

Trading against the trend carries more risk which leads to greater caution taken by the trader. The inside bar forex trading strategy is the simple price behavior strategy in Forex trading. It does not require other forex indicators as it is purely based on price movement. To enhance your trading strategy, add a Relative Strength Index (RSI) indicator as a complementary tool to your Inside Bar analysis. This enables you to assess whether the price has the potential to persist in its current trend, undergo a reversal, or remain within the range. Remember, candlestick patterns are not foolproof signals, and the Inside and Outside Bars should be used as part of a comprehensive trading strategy.

Most Popular Chart Patterns

In another case, when the mother bar does not appear, it’s also called the abandoned baby candle pattern. 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.

Introduction to the Inside Bar Pattern

Clearly, if you want to trade the breakout of an Inside Bar, you’d want to go with the small range one. 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. 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.

The role of Inside Bars in technical analysis

To get more chart patterns that you can test, go here to get the PDF cheat sheet. Again, learning to identify important support and resistance levels is all a matter of practice. Price action is also in a range and there is no obvious trend or support/resistance level. You might have been lucky if your took a long trade, but over time, you’ll lose more of these trades than you win.

  1. Should the market equilibrium give way to buying pressure the most important level to break is the inside bar high.
  2. If you only use the Inside Bar setup, you are cheating yourself out of a valuable and potentially profitable trade setup.
  3. helps traders of all levels learn how to trade the financial markets.

Many like this method because they enter the trade just as price moves in their favor. Please be mindful, however, that there is a possibility of a false breakout in this case. Traders could also wait for the candle to close, but this comes with the risk of missing a big move in the market. This pattern tells the trader where there is low volatility within the markets. As market volatility is always shifting, it helps to see multiple InSide Bars together because it is a strong sign that there will be big movement in the markets. For more information on trading inside bars and other price action patterns, click here.

The ‘Inside Bar’ is characterized by a bar or candle that is entirely ‘inside’ the range of the preceding one, whereas the ‘Outside Bar’ completely ‘overshadows’ or ‘engulfs’ the previous bar. It is important to note that this article only covers the basics of inside bar strategies. Traders have developed a significant number of advanced strategies using inside bars to recognize and trade potential reversals, and bearish patterns, and better recognize current trend reversals.

So, when you see multiple Inside Bars together, 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 is still an Inside Bar as the range of the candles is “covered” by the prior candle. This tells you there are indecision and low volatility in the markets.

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. Inside bar trading offers ideal stop-loss positions and helps identify strong breakout levels.

The subsequent breakout direction determines the bullish or bearish nature of this two-candle candlestick pattern. You will also want to use multiple timeframes to confirm the validity of the inside bar pattern. One important characteristic of the inside inside bar trading strategy bar pattern is its relationship to the prevailing trend. Inside bars that occur within an established trend often indicate a continuation of the trend. In contrast, inside bars that show up at the end of a trend can signal a potential reversal.

In the EUR/GBP chart below, the preceding trend is seen by lower lows and lower highs. 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.

The key is to be able to understand which levels are most likely to hold and which ones are just random lines on a chart. It will take you through the process of identifying the most significant levels on any chart. Not all breakouts are this strong, but this is a good example of a scenario when a range lead to a big breakout.

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