An “inside bar” pattern is a two-bar price action trading strategy in which the inside bar is smaller and within the high to low range of the prior bar, i.e. the high is lower than the previous bar’s high, and the low is higher than the previous bar’s low.

• the inside bar is a 2-candlestick formation.
• the first candlestick that forms called the “mother candlestick”
• the second candlestick that forms after the “mother candlestick” is engulfed completely within the shadows of the mother candlestick. That second candlestick is called the “inside bar”.

 

Instrument : You can use this strategy for any currency pairs.

Timeframes : Preferable for 4hr and the daily timeframes

Below we given example of how inside bar candlestick formation looks like :

An “inside bar” pattern is a two-bar price action trading strategy in which the inside bar is smaller and within the high to low range of the prior bar, i.e. the high is lower than the previous bar’s high, and the low is higher than the previous bar’s low.

• the inside bar is a 2-candlestick formation.
• the first candlestick that forms called the “mother candlestick”
• the second candlestick that forms after the “mother candlestick” is engulfed completely within the shadows of the mother candlestick. That second candlestick is called the “inside bar”.

 

Instrument : You can use this strategy for any currency pairs.

Timeframes : Preferable for 4hr and the daily timeframes

Below we given example of how inside bar candlestick formation looks like :

Based on the chat above :

• Two-candlestick formation
• The inside bar is completely engulfed within the shadows of the preceding bar or Mother candlestick
• The preceding candlestick can be either a bullish bar or bearish bar.
• The inside bar itself can also be bullish or bearish candlestick.

 

Formation of Inside bars

Inside bars when formed show a time period of market consolidation. This market consolidation can be due to the following reasons

• A time of indecision as traders are figuring out whether they are going to buy or sell or not as it can be a time where the bulls and bears of market forces are also almost of equal strength and each don’t know what direction to take on their trades.
• Low trading volume

 

These are some of the reasons why inside bars form.

Location of Inside bars

Well, inside bars can form anywhere. Many traders take notice of inside bars forming on the level listed below:

• Fibonacci levels
• trend line touch areas
• support
• pivots
• resistance

 

Its best to only pay attention to inside bars that form in the price levels listed above.

Short Entry :

Here are the selling rules :

• The market must be in a downtrend.
• Place a sell stop order anywhere from 2-3 pips below the low of the inside bar if you see an inside bar formation.
• Place a stop loss anywhere from 5-10 pips above the high of the inside bar.
• Make a exit on the close of the third candlestick also include inside bar while counting.

 

Long Entry :

The buying rules for the inside bar trading strategy are exactly opposite of the selling rules.

• The market must be in an uptrend.

• Place a buy stop order anywhere from 2-3 pips above the high of the inside bar if you see an inside bar formation.
• Place stop loss anywhere from 5-10 pips below the low of the inside bar.
• Make a exit on the close of the third candlestick also include inside bar while counting.

 

Other way to trade the the inside bar :

There’s an alternate way to trade the inside bar. You can use it if you really don’t care if price is going to go up or down. It’s a non-directional trading system.

You have to place a pending buy stop and sell stop order on both sides of the inside bar, so if price goes up or down, one of this pending order is sure to get filled/activated.

Follow the below steps :

• If you see an inside bar formation, then you place a pending buy stop order above the high of that inside bar and also place a stop loss below the low of that inside bar. You also need to place a sell stop pending order on the low of the inside bar and place its stop loss above the high of that inside bar.
• If one pending order is activated, then immediately cancel the other which has not been activated.
• For exit and take profits, you can use the techniques given above.

Pros :

• You can make high profit if the trend is strong
• Pure price action trading
• Time effective. If you trade using the daily chart, you need only a few minutes each day to check your chart, place your pending order when you find an Inside bar. Check later during the day to see which pending order was activated then cancel the other that was not activated.
• Easy to follow.

 

Cons :

• Too many false signals in smaller time frames.
• Price reversal due to false breakouts can lead to loss.