Inside Bar Trading Strategy: Entry and Exit Tips

In the daily time frame, the inside bar is not as common, so worthwhile trading patterns will be more obvious. If you look at the hourly chart, you will probably find several inside bars in one day, whereas on the daily chart, you can only find one inside bar in an entire day. Since this pattern was formed throughout the day, more traders will be involved in this formation. This pattern appears during a strong trend and represents a period of consolidation, which can be clearly seen in the lower time frame.

Chart Patterns

Margin Forex and CFDs are highly leveraged products, which means both gains and losses are magnified. You should only trade in these products if you fully understand the risks involved and can afford to incur losses. This bar is still “covered” by the previous candle, but the range is larger than the standard. Depending on the close, the bar could represent indecision, trend, or a reversal within the market. You can use the Relative Strength Index (RSI) as a tool to help confirm that direction of a potential breakout.

1. Remember, candlestick patterns are not foolproof signals, and the Inside and Outside Bars should be used as part of a comprehensive trading strategy.
2. The added Delta indicator helps illustrate the activity of buyers and sellers.
3. The power of this method is that the price has a rapid reversal after the initial breakout from the Inside Bar.
4. Additionally, the Inside Bar pattern provides even more accurate signals when clubbed with a technical indicator like RSI.

How to Identify Inside Bar Setups

Since we are trading a breakout of the second inside bar, using a pending order is good practice although you could hit a market order if watching the market. Keep in mind that when day trading, the moves to the profit targets won’t be as large. In that case, you may want to go to a higher time frame and see out other highs (in the case of longs) that may be taken out. Each trader will have to measure their own appetite for trailing stops and there are many ways to do that.

It is also better to choose inside bars, which are formed near the upper or lower range of the parent candle. No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses. The information on market-bulls.com is provided for general information purposes only. It does not constitute legal, financial, or professional advice. Market-bulls.com does not accept responsibility for any loss or damage arising from reliance on the site’s content.

Although it is inside bar trading strategy not a decisive chart pattern like many other chart patterns, it certainly enables traders to find many trading opportunities. Yes, advanced traders often mix the inside bar strategy with other patterns like moving averages and Fibonacci retracement. In forex, the inside bar strategy helps spot trends and find the best times to buy or sell.

Should I Use Leverage with Inside Bar Strategies?

This setup allows traders to place short orders during an uptrend and long orders during a downtrend. The three-bar inside bar strategy is a three-candle variation of the traditional inside bar (with two candlesticks) and is seen as a more reliable trend continuation pattern. If it closes the same color as the mother trend bar, then it signals an early breakout and continuation of the original trend. The three inside bar strategy was discovered by Johnan Prathap in 2011. As shown, the asset is moving and bouncing back within our identified price range or boundaries. In this scenario, we recommend utilizing the inside bar pattern only when it occurs near these key levels.

This strategy uses Inside Bar principles to find short-term reversals. An Inside Bar Pattern is two consecutive candles with the second candle’s high and low range within the first candle’s high and low range. Last but not least, the size of the inside bar relative to the mother bar is extremely important.

What are some tools and indicators used to detect inside bar setups?

1. This will help you build a trading strategy based on inside bars and other classic patterns.
2. The 3 inside bar strategy involves entering a trade at a breakout or breakdown of two consecutive inside bars.
3. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.
4. Volume – Since the inside bar pattern typically marks a period of indecision or uncertainty, the volume on the second candle should ideally be below average.
5. However, despite appearing to be a legitimate bearish breakout, it turned out to be premature, as there was no spike in negative values on the Delta indicator.
6. In other words, the inside bar by itself is not a working trading setup.
7. 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.

A bearish engulfing indicates a bearish reversal, while a bullish engulfing suggests a bullish reversal. Both are widely used by traders for technical analysis and identifying potential trading opportunities. 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.

This pattern continues for days, weeks or even months until new buyers are able to once again outweigh the sellers and drive the market higher. Once you have identified the Inside Bar, you can open a forex position in the continued or reversing market. However, you can also place an entry order just above the uppermost level of the Inside Bar with an expectation of market reversal. The more the difference between the Mother Bar and Inside Bar, the higher the chance of the market reversing and vice versa. Common strategies incorporate market bias analysis, chart patterns, and volume analysis into the mix.

In contrast, the harami is exclusively a reversal pattern that must occur in either an uptrend (bearish harami) or a downtrend (bullish harami). When the inside bar forms at that resistance level, it is a clear indication that the market is deciding its future direction. Breakout of the inside bar pattern confirms the direction of the market. If the price breaks high of the inside bar, then it will continue its trend (it will go up). Price will reverse its trend if it breaks the low of the inside bar. In a range trading strategy, we are looking to ideally position before the breakout of the consolidation pattern inside of a basing formation.

Using risk management helps traders avoid big losses and keep their money safe. It’s important to check and update your risk management plans as the market changes. Remember that an inside bar represents consolidation after a large move. This is what makes these patterns so lucrative – the fact that we are trading a breakout after a period of consolidation.

Inside Bars are widely used in technical analysis due to their simplicity and potential to catch strong price movements. They can be found in various time frames but are more reliable in higher ones like the daily chart. The bullish inside bar setups above formed on the USDJPY daily time frame. Note that this pair was in a strong uptrend leading up to both setups. This is the kind of momentum you want to look for when trading this strategy.