How to Trade with an Inside Bar Pattern Market Pulse

When this pattern forms during an uptrend, it suggests a temporary pause or consolidation in price before the uptrend potentially resumes. When it is formed in a downtrend, it signals a trend reversal. It’s crucial to exercise caution and be mindful of false signals that can occur. Traders try to adapt their trading strategies accordingly to improve their chances of success.

  1. To start tracking Inside Bars on your charts, use one of our handy alert indicators.
  2. Conversely, if a bullish Outside Bar forms during a downtrend, it might indicate a possible bullish reversal.
  3. Ideally, the Inside Bar should form within the Mother Bar’s upper or lower half.
  4. Consider going long in the direction of the Outside Bar’s closing.

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Inside bar pattern continues for days, weeks or even months until new buyers are able to once again outweigh the sellers and drive the market higher. This is because the lower time frames are influenced by “noise” and therefore might produce false signals. You may want to really consider just sticking with the trend and only look to reverse when given a major shift in the dynamics of price (strong resistance broken and acting as support).

False Breakout Trading Strategy

Once the mother bar forms, setting the range for our inside bar, watch for the close of your inside bar to form. This confirms the consolidation phase has elapsed and there is a relative pause in price action. The key levels to recognize for the bullish candle pattern are the high of the inside bar and the high of the mother bar.

How to Trade the Inside Bar Pattern

You can do this by using a pending order instead of waiting for the breakout to happen. And finally, remember to use the risk-reward system to make sure your trade is profitable. 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. Once our inside bar has formed we must consider the fact that market reversals can occur on any timeframe.

An Introduction To Trading Inside Bar Signals

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The inside bar is yet another “tool” in your price action toolbox that will add to your trading strategy which when mastered will help improve your chances of long-term trading success. Once you have identified the Inside Bar, you can open a forex position in the continued or reversing market. The more the difference between the Mother Bar and Inside Bar, the higher the chance of the market reversing and vice versa. The size of the Inside Bar with respect to the mother Bar depicts how accurate the bar setup signal will be. The smaller the size of the Inside Bar compared to the Mother Bar, the higher the chance of the market signals being accurate and vice versa. Ideally, the Inside Bar should form within the Mother Bar’s upper or lower half.

Help & Support

So, a better way to set your stop loss is 1 ATR below the low of the Inside Bar (for long trades) — so your trade has more “breathing room”. When it comes to stop loss, you don’t want to set it just beyond the lows of the Inside Bar. The Hikkake Pattern can be traded the same way you trade an Inside Bar (catch the reversal or catch the trend). But for now, I want to share with you a “special” Inside Bar so you can profit from trapped traders. Previously, you’ve learned how Inside Bar allows you to catch reversals in the market.

The stronger the trend, the easier it is for the pattern to provide a reliable signal. If the market is not showing any certain trend, the Inside Bar pattern will inside bar indicator not be able to form due to the uncertain market movement. Again, learning to identify important support and resistance levels is all a matter of practice.

Still, the inside bar allows you to identify a pause in price action and a good market entry level before the next price movement. As mentioned above, the inside bar is a two-candlestick pattern that may appear in any market scenario. Identifying the inside bar is not rocket science, and once you have a basic understanding of what it looks like, you will be able to locate it instantly on price charts.

You just need to remember a few rules to identify the pattern correctly. An inside bar is a two-candlestick formation that occurs when a candlestick’s high and low range is contained within the high and low range of the preceding candle. In other words, the entire price action of one candle is confined within the previous candlestick’s price range. Price action traders will look at this chart pattern and see that the inside bar represents a pause or consolidation in the market. These are low volatility ranges and the next course of action is a high volatility market and that equals a swing trading opportunity.

In general, smaller inside bars indicate a period of tighter consolidation, which in turn suggests an imminent breakout. On the other hand, larger inside bars tend to represent a more significant pause in the market and can lead to more substantial exchange rate movements once a breakout occurs. Analyzing the size of the two candles that form the inside bar pattern can also help currency traders better gauge the strength of potential breakouts. The inside bar candle pattern is one of the most frequently occurring chart patterns in financial markets. 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. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.

You can enter using a stop order when the price breaks out of the Inside Bar. This is what we call a Hikkake Pattern (a false breakout pattern). Now, you’ll learn how to use the Inside Bar strategy to catch the trend.

We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. This information is made available for informational purposes only. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material. The inside bar pattern is important because it provides forex traders with valuable information about currency market consolidation phases and potential breakout opportunities.

Generally, the stop loss would go on the other side of the mother bar. So if you took a short signal, the stop loss would go above the mother bar. For a long signal, the stop loss would go below the mother bar.