Inside Bar Trading Strategy

This suggests even greater market consolidation compared to a single inside bar, indicating strong accumulation or uncertainty among traders. The chart below shows us a good example of a Fakey buy signal with a pin bar as the false-break bar, in a trending market. Note in this signal that there were actually three inside bars within the mother bar structure.

If you liked this educational article please consult our Risk Disclosure Notice before starting to trade. The value of your portfolio can go down as well as up and you may get back less than you invest. Investing in Stocks, Commodities & Currencies may not be right for everyone. If you need more clarity on the market trend, you can place the 20 EMA indicator as a trend guide just as we did on the Meta chart up there.

It is not a complicated setup to trade but there is one trading tip I will give after a simple example. The average profit per trade is $27.67 when trading 1 Bitcoin, excluding other factors. The Delta indicator shows a spike in negative values, and the candle closes below the bright red clusters.

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. 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. For more information on trading inside bars and other price action patterns, click here. Forex trading is a dynamic platform for using inside bar strategies.

It is also better to choose inside bars, which are formed near the upper or lower range of the parent candle. Investopedia does not provide tax, investment, or financial services and advice. Investing involves risk, including the possible loss of principal.

What’s the Difference Between the Inside Bar and Inside Day Candlestick Patterns?

We like to see basing under resistance for an upside breakout and above support for downside breaks. If you agree with that saying, then a multiple number of inside bars should bring a bigger break. While that may be true, we are going to focus on the 2 inside bar candlestick pattern and remember, depending on the timeframe, they may have more meaning. You can see that buyers were trapped at the top of the previous candle. The red clusters on inside bar candlestick the inside bar suggest increased selling activity around the level, which generally indicates a preference for short positions.

Having this first-principles approach to charts influences how I trade to this day. Adding careful risk management and precise timing makes trading more effective. In Forex trading, the inside bar strategy helps identify trends and makes it easier to know when to buy or sell.

In other words, the entire price action of one candle is confined within the previous candlestick’s price range. In forex, the inside bar strategy helps spot trends and find the best times to buy or sell. The forex market’s high liquidity and volatility make this strategy work well, letting traders make the most of big price changes. The inside bar pattern is key because it shows market consolidation, often before a breakout.

Trading with Inside Bars—Entries, Stops, Exits

1. The inside bar is a two-candlestick pattern that signals trend continuation or reversal.
2. An inside bar formed during uncertainty or a flat market might not give a clear signal for future price direction.
3. To do this, we will use one of the most popular technical indicators—specifically, an oscillator—the relative strength index (RSI).
4. If you look at the hourly chart, you will probably find several inside bars in one day, whereas on the daily chart, you can only find one inside bar in an entire day.
5. Leverage can amplify profits with Inside Bar strategies, but it also increases risk.
6. It can help determine whether a trend will continue, shift to a non-trending market condition, or reverse altogether.

This pattern is ideally observed during trending market periods or after a series of consecutive—and often large—decisive moves in a specific direction. Therefore, the relatively smaller move made by the pattern can present viable entry points with more defined risk and upside potential. Skilled traders often mix the inside bar with patterns like head and shoulders, double tops, and moving averages. Inside bars work best in daily charts because here you won’t see the market noise that you always see in lower time frames. The daily chart serves as a natural filter, and there you will find the best price action patterns that will increase your chances of making a profit.

Inside Bar Pattern vs. Pin Bar Pattern

Fakey patterns can be traded in trending markets, range-bound markets or even against the trend form key chart levels. First, traders may encounter false signals when an inside bar setup appears on their chosen time frames. While whipsaws can occur with any candlestick pattern, they can be more pronounced with inside bars. This is because traders often rush to act on this setup without fully considering market context, sentiment, and the overall price structure. Even when ‘confirmed’ by the third candle, inside bar trade setups should not be viewed as foolproof signals. Like any pattern, the inside-day pattern has limits and should be used cautiously and with other analytical methods.

The basic strategy is looking for quick price targets, we are not interested in oversold/overbought and we can see momentum in the candlesticks. Keep in mind that when day trading, the moves to the profit targets won’t be as large. In that case, you may want to go to a higher time frame and see out other highs (in the case of longs) that may be taken out. Keep expectations in check, taking profits at the second dotted line (potential support level of the mother bar), this was a $9 price move per share.

What Is The Best Price Action Trading Strategy?

1. So, I’m going to share with you how I enter the inside bar trade.
2. We will have 2 price points that we will pay attention to when considering our profits.
3. Therefore, the relatively smaller move made by the pattern can present viable entry points with more defined risk and upside potential.
4. There are plenty of other trading opportunities available in other instruments.
5. Generally, traders would enter a short position when the price breaks below the low of the inside day pattern.

However, the momentum starts to slow down after surpassing 18,630, as indicated by a bulge in the profile around 18,636 (2). Modern volume analysis tools enhance the effectiveness of this approach, as we have illustrated in previous examples. A sudden shift in the Delta indicator’s color (5) shows that the buyers’ efforts were unsuccessful, we can see signs of seller aggression. This led to market hesitation, causing the price to stop and eventually start to gradually decline. On the left side of the 4-hour BTC/USD chart, you can see five inside bars marked with arrows. These bars are completely contained within the high and low of the previous bar.

Therefore the tighter this consolidation is, the more volatile the ensuing breakout will be. Of course, this isn’t always the case, but in my experience, it holds true more often than not. If the previous candle was a higher low and high, I am looking for a bearish trade and will place a sell-stop order below the low of the Inside Bar. If the previous candle were a lower high and low, I would place a buy-stop order above the Inside Bar. False breakouts happen regularly, and they usually result in losses.

Using the inside bar in a trading plan needs careful analysis and knowing the market well. Skilled traders often use extra indicators to check the signals from inside bars. An inside bar can be part of an extremely effective price action strategy. However, the effectiveness of the inside bar is highly dependent on the market context. In other words, the inside bar by itself is not a working trading setup. These include the engulfing pattern, the piercing line, dark cloud cover, morning stars, evening stars, three white soldiers, and the three black crows.