how to trade inside bar

Some traders like to use multiple moving averages to define a trend. They usually use 2-3 moving averages and when they are in order from shortest to longest period, that call that a valid trend. The way that many traders use this type of Inside Bar is to enter on a break above or below the Inside Bar. As you probably know, when price action starts to consolidate, it usually means that there will be a breakout. You can enter using a stop order when the price breaks out of the Inside Bar.

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Keep in mind that you can make almost any line fit some sort of trend or support/resistance level. Try it…just draw a random horizontal line somewhere on your chart. There are 2 basic types of Inside Bars that traders use to enter trades. Some traders use a more lenient definition of an inside bar that allows for the highs of the inside bar and the mother bar to be equal, or for the lows of both bars to be equal. However, if you have two bars with the same high and low, it’s generally not considered an inside bar by most traders. Sometimes, you can trade an inside bar as a reversal / stall pattern where price “stalls” out at a level and that leads to a reversal back the other direction.

Inside Bar Candle Setup

I hope the above blog about the inside bar has helped you gain an understanding of the inside bar candle setup. There are a total of six important characteristics for knowing the inside bar candle setup. It will draw real-time zones that show you where the price is likely to test in the future. Perhaps the most popular (and less controversial) location for inside bars is considered to be at non-threatening pullbacks to dominant trends. By non-threatening pullbacks we refer to brief periods of price movement back into the trend as opposed to an extended move that may be characterized as a mini trend in itself.

This is the kind of momentum you want to look for when trading this strategy. The smaller body and larger wicks indicate low market momentum. That is why verify the following characteristics of the inside bar pattern before using it in trading strategies.

More Indicators and Chart Patterns Explained

So, a good solution is to apply an indicator or a tool that works well with the inside bar. For that matter, you can use support and resistance levels, a Fibonacci retracement tool, MACD, RSI, and MAs. 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. For example, the inside bar pattern could also be formed with a large first candle and a second tiny Doji candle.

  • The power of this formation is hidden in the consolidative character of the formation.
  • When the inside bar forms at that resistance level, it is a clear indication that the market is deciding its future direction.
  • As in general, any time frame less than the daily chart should be avoided with this strategy.

Below, we will show you two market examples to trade the inside bar pattern – range and breakout trading strategies. As discussed earlier, as long as the first candle covers the first candle, it is an inside bar pattern. Note how the price continues to trade higher after the appearance of the inside bar pattern and the confirmation of the third candlestick’s formation. As mentioned above, the inside bar is a two-candlestick pattern that may appear in any market scenario. Identifying the inside bar is not rocket science, and once you have a basic understanding of what it looks like, you will be able to locate it instantly on price charts.

Identifying the Inside Bar on a Trading Chart

Keep in mind that there are no particular rules to set stop losses with the inside bar trading strategy. This candlestick chart pattern represents a temporary consolidation or pause in the forex market that suggests indecision prevails over the future direction of the market. This situation can in turn indicate a potential continuation or reversal of the prevailing trend once a breakout occurs. In structure, the inside bar is similar to the inside day candle pattern with the only difference that inside day is used on a daily chart time frame while the inside bar candle pattern is used for intraday trading. Furthermore, occasionally it may appear inside another chart pattern formation, such as the three inside-up pattern when the first two candles are in fact inside bars.

how to trade inside bar

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. As you can see, there were several large back-and-forth bars before this Inside Bar printed.

Inside Bar Pattern Explained

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 how to trade inside bar you can profit from trapped traders. Instead, for my Inside Bar strategy, I prefer for the price to make the reversal move first and then form an Inside Bar. Many traders love to trade Inside Bars at market structure (like Support and Resistance).

how to trade inside bar

During the initial decline, the price action creates an inside bar candle formation on the chart. Thus we can mark the high and the low level of the inside range. The next candle which comes after the inside bar breaks the upper level of the range. As you see, the price begins to reverse afterwards, and within the next two bars, the price decrease leads to a break of the lower level of the range. This confirms the Hikkake pattern on the chart, and with that, we should get ready to initiate a trade to the short side.

Trading the Inside Bar Candlestick Pattern

For more information on trading inside bars and other price action patterns, click here. 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. Traders use the InSide Bars strategy by waiting for price to make a reversal move and then form an InSide Bar. This way they are able to control their positions based on specific criteria and manage the perfect entry point by waiting for an ideal reversal in the market. In addition, there would then be volatility contraction, allowing the buying pressure to potentially continue if the price were to break out higher.

  • The image illustrates an inside bar on the graph, followed by a Hikkake pattern.
  • In all other cases, the best way to put a stop-loss is to use the end opposite the MB.
  • By understanding this pattern’s characteristics and using an effective trading strategy to take advantage of it, currency traders can identify high-probability trading opportunities.
  • The Hikkake pattern is another variation of the inside bar candlestick.
  • We can see a decent downside move occurred as price broke down past the inside bar’s mother bar low..

Finally, take profit is placed at the highest level of the last swing price. The “classic” and most commonly used stop loss placement will be just above or below the mother bar high or low, depending on if you are trading long or short of course. If I’m asked about what is the most interesting part for inside bar trade, my answer is «trailing». 1st kick is only for risk management purpose to make me able to deposit the risk to other trades, the outstanding risk-reward ratio is about the other half of the positions. The other half is very important so I need it to run as much as possible, so I NEVER put…

What Does Inside Bar Strategy Show?

Turning-point, or inside bar reversal signals, are best to leave alone until you have some solid experience under your belt as a forex price action trader. 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.

No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses. As you can see, when the inside bar pattern appears, the RSI stands at around 40-45, a level indicating indecision and the market and, thus, the likelihood of consolidation. Information available on this website is solely for educational purpose only. The advice, suggestion and guidance provided through the blogs are based on the research and personal views of the experts. Please do your own research before making your investment decision.

Price will reverse its trend if it breaks the low of the inside bar. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. 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.