We will focus on price action analysis by observing how the price reacts to these key levels and then taking a position to capitalize on these movements. This is the best inside bar strategy based on pure price action. This is a simple inside bar breakout sell trade setup. In the sell trade setup, the inside bar breaks in the direction of bears.

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Context, such as trend direction and support/resistance, determines whether the setup is bullish or bearish. The inside bar pattern shows market indecision, as the price isn’t moving much. The pattern shows a pause in momentum, suggesting that a new trend or a continuation of an old trend is coming up. Price charts can be filled with noise, but they can also signal that something is about to happen in the market. In technical analysis, candlestick charts are a good way to study the tugging and pulling between buyers and sellers in real time and over different periods.

These candles end up forming patterns that can mean different things depending on where and when they appear. They’re easy to use because they don’t require any indicators or calculations to identify; all you need is your eyes. This method may form part of a trading plan for taking advantage of false breakouts, which can happen with this pattern. Still, there is no guarantee that the price will move substantially in the opposite direction – it may simply be retesting the range before following the previous trend. In the next example, GBP is bearish on the weekly chart, judging by the downtrend (orange line). This market was also in a descending symmetrical triangle, with a bearish inside bar forming on either line.

Inside bar + moving averages

Moreover, the pattern could be either a trend reversal or continuation chart pattern, depending on the context of the markets. It is also one of the most frequently seen patterns that appear regularly in any market condition. So, as you can assume, there’s no one version of the inside bar pattern. The inside bar is a two-candlestick pattern that signals trend continuation or reversal.

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The Inside Bar pattern provides the most reliable signals when traded on a medium-term chart like a daily chart. This is recommended because, on a medium-term chart, Inside Bars have a larger sample size and occur only at the actual levels where the market can actually reverse. Additionally, the Inside Bar pattern provides even more accurate signals when clubbed with a technical indicator like RSI. The Inside Bar pattern works best on a daily time frame. Any timeframe shorter than this does not provide accurate signals as the prices are influenced by noise, and the pattern may occur several times without any solid market signal.

An Inside Bar formation right after a price breakout in the current trend provides the most accurate signals. This is because it indicates that the current trend is going to end, and the market will reverse. This enables traders to place short orders during an existing uptrend and long orders during an existing downtrend. 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. For traders, choosing between trading Inside Bars and Outside Bars depends on the preferred market conditions.

What Is Inside Bar Pattern?

• Not every inside bar setup should be used to open positions, but those that form near key highs or lows are definitely worth considering.
• An engulfing pattern is a large candle that completely covers the previous one.
• When an inside bar develops, check the RSI oscillator to gauge whether there is underlying strength or weakness in the market.
• A bullish inside bar pattern suggests a possible upward market move.
• Inside candlestick pattern represents indecision in the markets.

Typically, an inside bar signals market consolidation. However, breaking the boundaries of an inside bar might only signal an expansion of the consolidation zone. Which method should you choose for trading inside bars? Instead of sticking to a linear two-bar strategy, it might be more effective to focus on the overall market context and use footprint charts. This approach allows for a deeper understanding of buyer and seller dynamics during inside bar breakouts. Waiting for the breakout candle to close gives a trader more certainty that the price movement beyond the inside bar is strong and likely to continue.

Sideways trading ranges develop for a variety of reasons such as consolidating a larger trend, exhaustion and potential reversal, or simply a trendless market. Unlike other candlestick patterns, the bullish inside bar is not defined by the color of its first or second candle. In fact, the “bullish” nature of an inside bar has nothing to do with the candles’ colors and everything to do with the pattern’s position on the chart. An inside bar is considered bullish when it serves as either a continuation pattern during an uptrend or a reversal pattern during a downtrend. We will discuss this further and provide an example in the following sections.

Sign up for a live trading account or try a demo account Multiple InSide Bars within a single candle pattern. 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. Antonio Di Giacomo studied at the Bessières School of Accounting in Paris, France, as well as at the Instituto Tecnológico Autónomo de México (ITAM). He has experience in technical analysis of financial markets, focusing on price action and fundamental analysis.

This strategy uses inside bars to spot when a trend might keep going. To go long, trade when the price goes above the inside bar’s high. To go short, trade when it goes below the inside bar’s low.

Another error is overlooking the context of the inside bar. Inside bars are more important at key support or resistance levels. Also, be careful of very small inside bars, as they might not be a strong signal.

However, the second entry appears more well-supported due to the additional information from the footprint chart. 5 — a bearish breakout of the previous candle’s low, which is an inside bar, is accompanied by bright red clusters on the footprint chart, indicating seller activity. 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.

What are some key characteristics of a bearish inside bar pattern?

You don’t need to check any indicators or make complicated calculations, you can simply spot them with your eyes. Scan the chart and look for a smaller candle that’s completely enclosed within the one that came right before it. It should have a smaller range and body, with a higher low and lower high. This is called a compression setup because the Inside Bar shows that the price width has compressed, or tightened up, with a lower high and a higher low. It is an indication that volatility has gone down, and that the market is kind of catching its breath after a big move. Traders are undecided and taking a pause, waiting to see where the market will go from there.

• This pattern can suggest a pause before the current trend continues or a potential reversal, depending on the subsequent breakout from this range.
• To make a trading strategy, first, understand the logic behind price action.
• Our article will discuss the Inside Bar trading strategy and how to identify ideal price levels with the same.
• This is when the market takes a break before moving again.

Understanding the market psychology behind inside bars helps traders make better decisions. It shows a time when neither bulls nor bears are in control. It is important to note that this article only covers the basics of inside bar strategies. The meaning of an inside bar candle pattern that is inside bar candlestick bullish refers to the pattern, after which the price moves upwards.

Inside Bar Pattern Chart Examples

However, incorporating volume significantly increases its reliability as a candlestick pattern. Compared to inside bars, which are two-candlestick patterns, doji candles and their variations (long-legged, dragonfly, and gravestone) are single-candle patterns. Both inside bars and doji candles generally signify a period of indecision and uncertainty about the market’s direction. Yes, this includes dragonfly and gravestone dojis, which often indicate a rejection of further decisive price movement rather than a clear reversal. In fact, dragonfly and gravestone dojis frequently precede a shift from a trending market to a sideways (non-trending) market period. For example, both the entry and stop-loss points can be based on the opposite direction of the range of the mother bar or the inside bar candle.