How to Trade with an Inside Bar Pattern Market Pulse

You will sometimes see an inside bar referred to as an “ib” and its mother bar referred to as an “mb”.

How to Trade the Inside Bar Pattern

Within our back-testing period, the winning percentage of inside bars is 37.33% in a sample size of 4107. Keep in mind that we’re talking about the entire range of the candle from high to low, including its shadows. We need to see additional factors that tell us that the potential profit is worth the corresponding risk. And that’s not always easy, because you have to consider several components at once. The value of your portfolio can go down as well as up and you may get back less than you invest.

1. On the other hand, any timeframe longer than this may be too spread out for the Inside Bar pattern to provide ideal market continuation or reversal signals.
2. Instead, we recommend mastering price action, market structure, and volume analysis as the foundation of your trading strategy.
3. To determine if a bar is directional, we looked at the open-to-close spread as a fraction of the entire range of the inside bar (high-to-low spread).
4. On the candle before the inside bar, the price briefly dipped below the round psychological level of 18,400 during the day but closed above it (4).
5. A triangle pattern is conceptually similar to a Double Inside Bar.

For newer traders, perhaps the best approach is to treat inside bars like any other candlestick pattern – that is, locate them at key areas on the chart and trade them conservatively. Such an approach usually calls for trading a bullish inside bar at the break of the high and a bearish inside bar at the break of the low. Another aggressive approach to trade inside bars is to often place pending entry orders a few ticks above the high as well as below the low of the inside bar to take advantage of a break of either side. This strategy would normally apply to more neutral inside bars that may not necessarily support a bearish or a bullish setup. Again this aggressive approach is perhaps best suited to professional traders who possess strong skills when it comes to trading sideways indecisive markets and market action.

This is mainly down to what the inside bars represent in the market. With our pending order placed all we need to do now is wait for the market to break the low of the mother candle. It implies a significant edge in the competitive field of day trading. The performance of both directional bars and dojis does not differ too much from our benchmark.

The ‘bearish’ nature of the inside bar is determined by its position on the chart. Mark the low and high of the inside bar consolidation range, as these levels are key areas that trigger a trade position. If an uptrend is interrupted by this price action pattern, then go long (inside bar buy signal) and in case a downtrend is interrupted by it, go short (inside bar sell signal). This formation can be regarded as a false breakout of the inside bar. More often than not, a false breakout causes the market to change its direction. For example, a false breakout of a key resistance level often results in a steady price decrease.

It forms when two consecutive candles (bars) stay entirely within the range of the previous candle. This suggests even greater market consolidation compared to a single inside bar, indicating strong accumulation or uncertainty among traders. An Inside Bar formation right after a price breakout in the current trend provides the most accurate signals. This is because it indicates that the current trend is going to end, and the market will reverse. This enables traders to place short orders during an existing uptrend and long orders during an existing downtrend. Its relative position can be at the top, the middle or the bottom of the prior bar.

Spotting the main trend is key when using the inside bar strategy in forex. Traders use tools like moving averages and trend lines to see where the market is going. This helps them set up their inside bars in line with the market’s direction.

An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar. This pattern signifies a consolidation phase where the market takes a “pause,” often leading to a breakout once the price breaks above or below the Inside Bar. Using a previous support or resistance level as a stop-loss will result in a larger stop loss. But it also means there is less likelihood of being stopped out too early in the trade, i.e., it can give the trade more breathing room. However, if I see the second candle as much shorter than the first, for example, less than half its length, I will treat it like an Inside Bar Setup. ATAS enables you to load tick history from different markets, not just cryptocurrencies, providing you with a comprehensive foundation for identifying patterns in price and volume interactions.

You could consider entering a long position in the direction of the breakout. Conversely, if a bullish Outside Bar forms during a downtrend, it might indicate a possible bullish reversal. Consider going long in the direction of the Outside Bar’s closing. The classic strategy for trading inside bars involves waiting for the price to break either the upper or lower boundary of the inside bar and then entering the trade in the direction of the breakout. A stop-loss is typically placed just beyond the opposite boundary of the inside bar. There’s no doubt that inside bars can be a profitable way to trade the Forex market.

The Simplest Trading Strategy in the World

In fact, an inside bar can evolve into an NR4 pattern if it is followed by two additional indecisive candles. Ultimately, the key requirement for an NR4 is that the fourth candle must have the narrowest (smallest) range among the last four candles. Inside bars are one of the many Japanese candlestick patterns traders follow in the forex market. The forex market is one of the largest in the world and therefore, attracts many buyers and sellers. Similar to the bullish inside bar, the bearish inside bar is not defined by the color of its inside bar trading first or second candle.

Trading Inside Bar with Relative Strength Index

1. However, when you know what to look for, these setups can be quite profitable.
2. The empty red and green boxes highlight the inside bar formations whose sell or buy orders weren’t triggered while the filled ones indicate the ones with long or short positions.
3. Yes, advanced traders often mix the inside bar strategy with other patterns like moving averages and Fibonacci retracement.
4. When there is a price zone instead of an exact level, the Inside Bar is a great way to signal to find a precise area to enter a trade in the zone.
5. Open a position with a market trend continuation expectation when the currency pair price is still trading between the Mother Bar’s high and low-price levels as the market is expected to continue.

The market is consolidating itself, after a large directional trend. Here’s another example of the pin bar and inside bar combo pattern. This time, it’s more of a reversal pattern because it formed at a resistance level, causing a false break of that resistance level and then set off a move to the downside. We can see a dramatic sell-off unfolded as price broke down below the inside bar. To avoid false breakouts, combine Inside Bars with trend indicators like moving averages or support and resistance levels.

The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. It is also better to choose inside bars, which are formed near the upper or lower range of the parent candle. The information on market-bulls.com is provided for general information purposes only.

This price pattern is useful in the right context, but trading it can be tricky. This review will go through a few guidelines and examples to help you use it for intraday trading. The empty red and green boxes highlight the inside bar formations whose sell or buy orders weren’t triggered while the filled ones indicate the ones with long or short positions. The two charts above show inside bars marked in light green shade. You can see the relatively smaller range of the inside bars and importantly how their high and low are tucked within the range of the prior bar, giving it the look of being ‘inside’ the preceding bar.

The double inside bar pattern is a variation of the traditional inside bar. The double inside bar set up is a three candle formation of two inside bars. The second candle plays both the part of an inside bar to the first candle AND as the mother bar to the third candle. If the inside bar pattern develops below the moving average, then we’ll anticipate a bearish breakout. This setup spots the transition from muted action to powerful thrusts. Hence, with careful analysis, you can pinpoint setups with a fantastic reward-to-risk ratio.