Looking Inside the Inside Bar for Day Trading

After many years in the financial markets, he now prefers to share his knowledge with future traders and explain this excellent business to them. For traders, choosing between trading Inside Bars and Outside Bars depends on the preferred market conditions. Inside Bars suit traders who are looking for breakout setups, while Outside Bars can be beneficial for inside bar trading reversal trades. An Inside Bar pattern is a type of candlestick formation where the current bar is entirely within the previous bar’s range, signaling a pause in market movement and a potential breakout. The 3 inside bar strategy involves entering a trade at a breakout or breakdown of two consecutive inside bars.

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Experienced traders might choose different entry points or stop loss placements based on their strategies and preferences. The traditional entry method for an inside bar setup involves placing a buy-stop or sell-stop order at the high or low of the mother bar. When the price breaks above or below the mother bar, the entry order is triggered. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. 2) The inside pin bar combo setup is simply a pin bar that’s also an inside bar.

Looking at the high and low of the inside bar can give important hints. Also, comparing trade volumes before and after the breakout can show how strong the move will be. Getting the timing and execution right for inside bar trades can greatly improve your results. It’s about knowing the best times to buy and sell by understanding the market and using reliable indicators. Waiting for clear signs before acting on an inside bar pattern helps avoid early mistakes. It’s a bar that fits completely inside the high and low of the previous bar, known as the “mother bar.” This shows a pause and a possible breakout in the market.

A Triple Inside Bar pattern is an even more vital sign of a meandering market. This example illustrates the different entry options available for this pattern. We computed the range of the inside bar as a fraction of the range of its preceding bar.

How to Trade Inside Bars

It means always keeping your risk to no more than half the potential reward. So if your take profit is 200 pips, your stop loss can be no more than 100 pips away from your entry price. Truth is, a favorable inside bar setup doesn’t come around often. Of the price action strategies we use here at Daily Price Action, the inside bar is the least common. The Inside Bar pattern works best when the market is currently trending. The stronger the trend, the easier it is for the pattern to provide a reliable signal.

This material should be viewed as a solicitation for entering into a derivatives transaction. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

1. The prior bar, the bar before the inside bar, is often referred to as the “mother bar”.
2. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.
3. Conversely, if a bullish Outside Bar forms during a downtrend, it might indicate a possible bullish reversal.
4. 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.
5. Our testing revealed that wide range inside bars (with range more than 75% of the range of the preceding bars) outperformed our benchmark by the largest margin.
6. The inside bar is a two-candlestick pattern that signals trend continuation or reversal.

The 3 Worst Times to Trade Forex (And the Best Times)

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. 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.

1. 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.
2. In the example above, it is understandable for price to be losing momentum as it approaches such a key former support level.
3. It implies a significant edge in the competitive field of day trading.
4. Therefore, the bearish breakout of the inside bar (2) would be a low priority for a trader who reads the footprint.
5. This formation suggests the potential end of the current trend and a forthcoming market reversal.

Second, relying solely on inside bar setups is unreliable, especially for beginners. This is because market context is incomplete without considering the accompanying volume and the market structure in which the setup appears. However, this doesn’t mean you should rely on multiple technical indicators, as that can be counterproductive. Instead, we recommend mastering price action, market structure, and volume analysis as the foundation of your trading strategy. Jumping between different technical indicators can lead to poorer trading decisions. Here, we see a strong uptrend leading into the inside bar pattern.

That bearish candlestick than follows an inside bar, again at that same key resistance level which now just acts as additional confirmation to the lack of bullish strength in the market. The chart above illustrates price accelerating into a key resistance area that is not as clearly defined by a narrow side to side support and resistance level but rather a thicker wedge pattern. Trading a supposed inside bar at a swing high here could potentially be dangerous as it can be hard to pinpoint an exact price level representing key resistance here. Such strategies do not usually pan out well in the long term as the market transitions into a different phase perhaps requiring a varied approach to trading inside bars. We go into the actual trading strategies for inside bars a little later.

One popular forex trading strategy, which employs pure price action data, is the Inside Bar pattern. This is a two-bar candlestick pattern, where we see a candle on the chart, completely enclosed within the previous bar, representing price consolidation. Inside bars usually have higher lows and lower highs than the previous candles. At swing lows and key support levels for example, they are usually characterized with bullish attributes, and at swing highs and key resistance they may possibly represent bearish traits. Inside bars can be traded in trending markets in the direction of the prevailing trend, often referred to as a ‘breakout play’ or an inside bar price action breakout pattern. They can also be traded counter-trends, usually from key chart levels, where they are known as inside bar reversals.

An Inside Bar potentially means that the price action recently dominated by the sellers is now weakening. This article represents the opinion of the Companies operating under the FXOpen brand only. Traders see this as a bullish signal, positioning it as an entry point to capture further upward movement. Understanding the components of an Inside Bar setup is essential for identifying high-quality trades.

That’s why trading this pattern can be profitable – you trade in the trend and open a position upon a breakout of the range. The meaning of an inside candle that is bullish refers to an inside bar, after which the price moves upwards. When this pattern forms during an uptrend, it suggests a temporary pause or consolidation in price before the uptrend potentially resumes. Inside Bar patterns are reliable in strong trending markets and higher time frames. In consolidating markets, however, they may lead to more false signals. Daily and 4-hour charts are the most reliable for trading Inside Bars, as they reduce noise and offer stronger signals.