Click the banner below to open your live account today! Your go-to source for market insights, strategy breakdowns, and trading psychology. Whether you’re refining your edge or just starting out, our blog is built to guide every step of your trading journey. When you combine inside bars with structure, volume, and session timing — and wait for clean breakouts — you dramatically increase your odds of success. Tight stops, clear targets, and controlled execution make this a strategy that can be scaled and refined over time.
Advantages and disadvantages of the inside bar trading strategy
- When setting a take-profit level, traders often look at the size of the mother bar or nearby areas of support and resistance.
- Most traders lose with Inside Bars because they treat the pattern as the starting point.
- A valid setup is more than just one small candle inside a larger one.
- The inside bar pattern features two successive candlesticks that typically indicate a market consolidation or uncertainty phase.
- Even though the pattern is known as having a structure with one large bullish or bearish first candle and a second smaller candle, it could have many other chart formations.
The inside bar pattern differs from the NR4 pattern regarding the number of candlesticks involved. For those unfamiliar, NR4 was a pattern discovered by Tony Crabel that has similar characteristics to the inside bar. When the inside bar setup is spotted, determine how the MACD line is positioned relative to its signal line. 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.
Most Popular Chart Patterns
However, they can also form at market turning points and act as reversal signals from key support or resistance levels. 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.
The stronger the trend, the more dependable the signal. In a market lacking a clear trend, the Inside Bar pattern is less likely to form due to uncertain price movements. The Inside Bar pattern is most effective on a daily time frame. Shorter time frames tend to produce inaccurate signals due to market noise, causing the pattern to appear multiple times without providing reliable market indications. Conversely, longer time frames might be too extended, reducing the effectiveness of the Inside Bar pattern in signalling ideal market continuation or reversals.
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You can place a sell stop order just below the mother bar’s low. The price breaks out and falls quickly, allowing you to gain from your short position. For an inside bar forex strategy, let’s take the EUR/USD pair. Imagine you see a strong uptrend on the EUR/USD daily chart. You can place a buy stop order just above the mother bar’s high.
Should I Use Leverage with Inside Bar Strategies?
You can use Fibonacci retracement to find entry and exit points. An inside bar that forms at a key Fibonacci level (such as 50% or 61.8%) can be a high-probability trade. You can look for an inside bar that forms near a moving average. It shows that price is consolidating around a key level. Learn more about candlestick patterns and how to recognise them.
Trading Inside Bars Against the Trend, From Key Chart Levels
Inside bars are probably one of the best price action setups to trade Forex with. This is due to the fact that they are a high-chance Forex trading strategy. They provide traders with a nice risk-reward ratio for the simple reason that they require smaller stop-losses compared to other setups. Many traders find inside bar Forex trading on the daily chart time frame, and in powerful trending markets, offers good opportunities. The three-bar inside bar strategy is a three-candle variation of the traditional inside bar (with two candlesticks) and is seen as a more reliable trend continuation pattern. The key to the three inside bar is the third candle.
If your setup works out as planned, a solid profit-taking plan should be in place. The natural area is to target the nearest key support or resistance zone. This is because the market expects the price to stall around these areas, making it the perfect time to exit.
Trading Process Guide
Daily and four-hour charts tend to provide clearer signals with fewer false breakouts. Struggling to find a simple trading strategy that delivers real results? Many traders face the same struggle, constantly switching between strategies in search of something that works. Antonio Di Giacomo studied at how to trade inside bar the Bessières School of Accounting in Paris, France, as well as at the Instituto Tecnológico Autónomo de México (ITAM). He has experience in technical analysis of financial markets, focusing on price action and fundamental analysis.
Reversal Signal
- Breakout of the inside bar pattern confirms the direction of the market.
- The pattern indicates the market has recognized the larger support and resistance level as important and paused its mini-trend within the larger price range.
- It’s best to use low leverage until you gain experience with this strategy.
An inside bar that forms with a long wick shows that price attempted to break out of the mother bar’s range but was rejected. This failed breakout attempt suggests the market is not ready to move in that direction and may foreshadow a reversal or stronger move the other way. Both Inside Bars and Outside Bars are useful tools for traders to identify market consolidation, volatility, and probable breakout or reversal levels. An Inside Bar is a candlestick that is fully contained within the range (high and low) of a preceding candlestick, often referred to as the “Mother Bar”. This candlestick pattern indicates either consolidation or indecision within the market, but is often seen following a strong price trend. Similarly as mentioned before, this pattern indicates that momentum is resting and can suggest a potential price breakout or reversal.
An NR4 pattern can evolve into an NR7 if the 7th candle has the smallest range among the last seven candles. Additionally, NR7 is considered more significant due to the longer period of consolidation, often leading to a stronger breakout compared to NR4 or the Inside Bar pattern. The double inside bar pattern is a variation of the traditional inside bar.
This inside bar strategy is based on the fact that price decides its direction from key levels. But if there is an inside bar at the key level then it will make it easy to forecast the direction of the market. For traders, choosing between trading Inside Bars and Outside Bars depends on the preferred market conditions. Inside Bars suit traders who are looking for breakout setups, while Outside Bars can be beneficial for reversal trades. An Inside Bar pattern is a type of candlestick formation where the current bar is entirely within the previous bar’s range, signaling a pause in market movement and a potential breakout. An inside bar forming with a strong trend at a key level is a reliable signal.
You can also use pending orders to automate entry around these levels. This works in a similar way to the breakout method. An inside bar has a body that is contained within the previous bar and can have a larger body than a doji.