How to Use Inside Bar Trading Strategy

In this case, you will enter a trade intending to capture small price movements inside a range area, hence, support and resistance levels. So, you cannot trade every single inside bar the same, as you may not know if the trend will reverse or continue. Instead, it would be best to interpret the pattern differently on the market scenario and decide the next price direction. Still, the inside bar allows you to identify a pause in price action and a good market entry level before the next price movement. Once our inside bar has formed we must consider the fact that market reversals can occur on any timeframe. Therefore we may encounter a scenario where the high or low of our inside bar breaks, but the price action lacks the strength to close above that key level.

  1. To validate the signals yielded by the Inside Bar, you can also employ a Simple Moving Average indicator, where the crossover should coincide with the formation of the mother candle (the initial candle).
  2. You can also use the low of the mother bar candlestick if it’s reasonable far from your entry, but it carries a higher risk of being stopped out before the impulse wave begins.
  3. So, you can have other candlestick patterns, such as pin bars, dojis, and others, form an inside bar pattern.
  4. So, you go long when the price breaks above the highs of the Inside Bar.
  5. RSI, MAs, SMAs and EMA as well as more advanced indicators such as Bollinger Bands can help you gather as much insight and data as possible.

Strategies for trading the Inside Bar pattern

It is called an inside bar because the first candle completely covers the second candle, which is a chart formation that helps traders predict the next price movement. In other words, the inside bar’s high is lower than the mother candle’s high, and its low is higher than the mother candle’s low. This pattern indicates a period of consolidation, where the market is being indecisive. As the balance between buyers and sellers is relatively equal price simply maintains a steady level.

Support and Resistance Levels Trading Strategy

The inside bar is one of the most recognizable reliable patterns in use today. Famous for its easy visual representation of consolidation, this simple chart pattern can earmark the conditions for a profitable trade setup. This approach relies on the concept of price action, focusing on the analysis of individual candlestick patterns to identify potential inside bar trading strategy trading opportunities. In this article, we will explore the various aspects of the inside bar pattern, from mother candle to bullish reversal, and share expert tips to enhance your trading performance with the profitable inside bar setup. Understanding price action strategies is crucial for traders because it forms the foundation of technical analysis.

Bonus: Inside Bar price action analysis

However, it is important to be aware of the challenges, such as false breakouts, subjectivity in pattern identification, reliance on other factors, and variable success rates. The formation of the bearish break pattern follows the same process as the bullish breakout strategy. The major difference between the two setups is that we are looking for weakness. Following the choppy market action of the inside bar, we closely monitor the lows of the inside bar candle. Once this candle breaks this low consider the inside bar active and the target for this potential trade is the low of the previous candlestick.

This is most likely if the second candlestick (inside bar) forms on high volume. An inside bar is considered to have a bullish implication if it occurs at the end of a price decline — a pullback in an uptrend or a swing down in a ranging market. What determines whether the pattern has a bullish or bearish implication is the position of the pattern in the entire price action. The two candlesticks can have any color combinations — bullish/bearish, bearish/bullish, bullish/bullish, or bearish/bearish — but the color combination doesn’t necessarily determine the significance of the pattern. Inside bar refers to a double candlestick pattern in which the range of the second candlestick lies within that of the first candlestick. 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.

For a market in an uptrend, impulse waves move upwards and tend to reverse at known or new resistance levels, while the pullback waves go down and reverse at support levels. An inside bar is much easier to take in a trending market because the odds are already in your favor for trading with the trend. The inside bar will many times lead to a breakout or continuation in-line with the existing trend direction. They can provide a good structure to try to pyramid your trade into a huge win.

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.

Price action trading focuses on the movement of an asset’s price over time, allowing traders to identify trends, reversals, and potential trading opportunities. The inside bar is one such price action strategy that can provide valuable insights into market behavior and direction. Inside bar trading is a simple and versatile trading strategy that can be applied across various financial markets and timeframes. It allows even novice traders to identify potential trend continuations and reversals and manage risk effectively with clear stop-loss placement.

As an entry strategy, traders look for Inside Bars in trending markets, interpreting them as a pause before potential continuation. Technical analysis largely depends on using past price movement data to hopefully forecast market conditions which create an opportunity for profit. This can be the price breaks, a beneficial price movement, or a price moving in the opposite direction. Find the existing trend using the technical indicators or price action analysis.2.

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