The Inside Bar Trading Strategy Guide

baby candle

In this case, you will enter a trade intending to capture small price movements inside a range area, hence, support and resistance levels. Below, we will show you two market examples to trade the inside bar pattern – range and breakout trading strategies. The first candle has a tall body, sometimes very large wicks, and is called the mother bar.

On the other hand, place a sell stop order below the low of inside bar in case of false resistance breakout. This is the guide to inside bar and support/resistance trading strategy. For example, the market will tend to reverse or continue its direction from a resistance level. When the market price reached a resistance level, there it will decide either to break this resistance level or to reverse from this level.

bar candle pattern

I have spent many years testing and reviewing forex brokers. IC Markets are my top choice as I find they have tight spreads, low commission fees, quick execution speeds and excellent customer support. Keep in mind that you can make almost any line fit some sort of trend or support/resistance level.

Advantages and disadvantages of inside bar trading

I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! It also helps when the mother bar has the highest high or lowest low at the support/resistance level. It is important that the breakout thru the opposite side occur within 2-3 bars of the original breakout.

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As you probably know, when inside bar trading strategy action starts to consolidate, it usually means that there will be a breakout. However, if this happens you should look to see if there is an Inside bar failure pattern emerging. In this next section we will take a closer look at the Hikkake pattern, which is an inside bar fakeout. When you see this pattern, you should position yourself in the market to trade in the opposite direction to the one which you had previously placed. The blue circle on the image points to the inside day candle. Also take note of the three blue arrows at the left side of the image, which shows that the previous three candles on the chart are actually bigger than the inside candle.

As mentioned earlier, InSide Bars can vary in terms of size, and can also vary in range, color, etc. Here are a few types of bars that you will most likely use when utilizing the InSide Bar Strategy. This Breakout Failure Scans Bundle package gives you both of our bull and bear failed breakout scans for a single low price. The candlestick’s high is less than the previous day’s high. Stop loss level will always be placed on the other side of inside bar. Like if order opens at the high of inside bar, then stop loss will be below of low of IB.

How To Trade The Inside Day Candle Pattern

So, when you see multiple Inside Bars together, it’s a strong sign the market is about to make a big move soon. Now, depending on the close of the Inside Bar, this could represent indecision or a reversal in the markets. This is still an Inside Bar as the range of the candles is “covered” by the prior candle. This tells you there are indecision and low volatility in the markets. This is a standard Inside Bar candle where the range of the candle is small, and it’s “covered” by the prior candle.

nial fuller

Newcomers to the are advised to choose the most conservative trading method. One of the most basic chart formations is the inside day candlestick pattern. If you not familiar with the inside day price bar, then read on to learn more about how to spot, interpret, and trade the inside day candle. Sometimes, when support and resistance or trendline breaks with a big candlestick then price again come back inward the key level.

Depending on what you are trading and what your end goals are, your exits will vary. If you are looking to capture a swing, some traders find it most helpful to exit trades before any opposition starts. If aiming to ride a trend, however, traders tend to trail their stop loss just as the market begins to adjust to their prediction. However, it isn’t a setup that occurs often, at least not in a favorable context. This is why I don’t advocate using the inside bar as your only setup to trade the market.

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An outside bar appears during periods of increased volatility. It is better to enter the market during periods of low volatility – you can put a small reasonable stop. If an outside bar occurs when the trader is already in a position, it is recommended to move the stop loss to breakeven and wait for the situation to develop. In the examples provided throughout article, you saw that the standard inside bar and its variations can provide very attractive price action setups. And any trader, regardless of their trading style, can take advantage of and incorporate these patterns into their trading methodology. When you discover an inside bar breakout on the chart, you will most likely want to trade in the direction of the breakout.

  • This inside bar strategy has been made by the combination of inside bar breakout and support/resistance breakout.
  • This type of Inside Bar appears at support and resistance levels.
  • Enter long or short positions after the formation of the pattern.
  • It will draw real-time zones that show you where the price is likely to test in the future.

So, when the price “stalls” after a pullback , you want to enter as soon as the price resumes in the direction of the trend. In a strong trending market , the pullback is shallow. Instead, for my Inside Bar strategy, I prefer for the price to make the reversal move first and then form an Inside Bar. That’s not smart because it’s a low probability trade especially when the market is in a “choppy” range. And volatility in the markets are always changing, it moves from a period of low volatility to high volatility .

In this manner, we can trade the Forex pair in the opposite direction to the initial Inside Bar trade entry. The stop loss in this case should be placed on the opposite level of the inside range. This ID NR4 trading pattern is quite a prolific and reliable setup that astute traders can take advantage of.

Inside bars show a period of consolidation in a market. A daily chart inside bar will look like a ‘triangle’ on a 1 hour or 30 minute chart time frame. They can sometimes form following a strong move in a market, as it ‘pauses’ to consolidate before making its next move.

Inside Bar

Inside Bar Candlestick Pattern on a chartThe Inside Bar can have several inside bars within its range. This defines a more extended consolidation period that can possibly lead to a stronger breakout. However, if you have two bars with the same high and low, it’s generally not considered an inside bar by most traders. Again, learning to identify important support and resistance levels is all a matter of practice. Price action is also in a range and there is no obvious trend or support/resistance level. You might have been lucky if your took a long trade, but over time, you’ll lose more of these trades than you win.

If using the more aggressive stop loss strategy, this means selecting inside bars that form near the upper or lower range of the mother bar. This allows you to achieve a much more favorable risk to reward ratio. First and foremost, the time frame you use to trade inside bars is extremely important. As a general rule, any time frame less than the daily should be avoided with this strategy. This is because the lower time frames are influenced by “noise” and therefore produce false signals.

The other half is very important so I need it to run as much as possible, so I NEVER put… Last but not least, the size of the inside bar relative to the mother bar is extremely important. This idea piggybacks off of number four above, where the inside bar forms in the upper or lower range of the mother bar. Below are two examples of inside bar patterns that formed in different market conditions. The first example is what you want to look for while the second is what you should avoid.

Identify the mother and the baby candles in an uptrend or downtrend. Now let’s analyze how traders can manage entries and exits while using this specific strategy. It’s mostly due to the fact that this particular strategy requires a strong trend in a market that has room to run. In other words, a trend that is strong but not exhausted.

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Not all breakouts are this strong, but this is a good example of a scenario when a range lead to a big breakout. You don’t need to know why Inside Bars happen, you just have to understand what the price action is telling you. When you are selling, the stop loss should be set above the highest point of the inside bar. Test your knowledge of forex patterns with our interactive ‘Forex Trading Patterns’ quiz. I’ve been following for years, and have to agree with Koos De Klerk, the most important part especially when trading daily timeframe is the patience. To identify the inside bars you could, but not to trade them, as filtering must be applied.

See the ratio of the price range of the mother candle and the inside bar. If the mother candle is large, it is recommended to look for reversal trades. There must be a directional move before the pattern appears. When trading intraday, you should trade in the American session. You should not trade if the inside bar has long shadows – doji or pinbar. The inside bar is a two candlestick reversal or continuation chart pattern showing a period of market consolidation.

Daily ranges can be large and expensive to trade correctly. A sell order was entered at 1.0580, beneath the current day’s high. It will draw real-time zones that show you where the price is likely to test in the future. In the Inside Bar Candlestick Pattern, the second candle is smaller than the previous candle. It describes that the high of the second candle is lower than the first, and the low of the latter is higher than the first candle. Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner.

short term

So, a better way to set your stop loss is 1 ATR below the low of the Inside Bar — so your trade has more “breathing room”. Now, don’t worry about how to set your stop loss or trade management because we’ll cover that later. Now, you’ll learn how to use the Inside Bar strategy to catch the trend. Previously, you’ve learned how Inside Bar allows you to catch reversals in the market.

Support and Resistance Levels Trading Strategy

The other type of Inside Bar trading signal is the countertrend Inside Bar. This type of Inside Bar appears at support and resistance levels. When looking for these types of trades, you first want to identify a strong trend.

  • This means you could get a good R multiple on your trade in a short amount of time.
  • Traders attempt to join the breakout direction via buying above the inside day’s high or selling beneath the low.
  • It is better to enter the market during periods of low volatility – you can put a small reasonable stop.
  • The inside bar should be small – you can put a short stop, there is no strong uncertainty in the market when stops are knocked down in all directions.

Daily members on-going daily and weekly market commentary where we discuss potential inside bar trade setups as they form. 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. An inside bar pattern is a multi-bar pattern that consists of a “mother bar” which is the first bar in the pattern, followed by the inside bar. An inside bar pattern can sometimes have multiple inside bars within the same mother bar.

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Many like this method because they enter the trade just as price moves in their favor. Please be mindful, however, that there is a possibility of a false breakout in this case. Traders could also wait for the candle to close, but this comes with the risk of missing a big move in the market. Our suggestion would be to find whichever method works best for you. The inside bars in the chart above formed on the GBPJPY daily chart in a choppy market. This sideways price action represents consolidation, which is what you want to avoid when evaluating an inside bar setup.

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