How to Trade with the Inside Bar Pattern for NASDAQ:TSLA by FXOpen

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 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. The inside candle pattern occurs when the high and low of a candle are contained within the range of the preceding candlestick, indicating consolidation or indecision in the market. On the other hand, an outside bar, or engulfing pattern, happens when the high and low of a candlestick completely engulf the previous candle, signalling a potential reversal.

Benefits of Using the Inside Bar Pattern to Trade Forex

To enhance their analysis, traders combine the formation with other technical indicators and utilise effective risk management strategies to manage potential losses. The timeframe in which the inside bar pattern appears plays an important role in its interpretation. Even in shorter timeframes, however, inside bars can still provide valuable forex trading opportunities if the market context aligns with other supportive factors. In the fast-paced world of forex trading, having a reliable and effective price action trading strategy is one of the main keys to success.

Putting it All Together for Successful Inside Bar Trading

2nd candle low is higher than 1st engulfing candle.INSIDE CANDLE METHOD1. Enter Break of Engulfing Larger CandleInside Candle method is a great short term… I have been wondering how best to trade inside bars, and you have explained it so well. Thank you for taking your precious time to share your valuable insights with us. This means you could get a good R multiple on your trade in a short amount of time. So, if you trade a small range Inside Bar, it means volatility is low and there’s a good chance it could expand in your favour.

Professional Trader, Author & Coach

In the above example after the closing of the second candle you could validate the presence of inside bar candlestick pattern. Once the pattern is validated the price indeed reversed its direction and moved upwards. When you combine a pin bar into an inside bar, you are getting both a “wind-up” that is going to be released and a pin bar with a tail / shadow that indicates the next potential direction of the market. Hence, an inside bar is not just a pause in the market, it’s a pause with an extra piece of confluence behind it, and as a result, a more powerful price action signal. HowToTrade.com helps traders of all levels learn how to trade the financial markets. Even though the pattern is known as having a structure with one large bullish or bearish first candle and a second smaller candle, it could have many other chart formations.

The Bearish Break

1. The Inside Bar pattern works best when the market is currently trending.
2. However, they fail to specialize in understanding a trading strategy thoroughly.
3. He has a monthly readership of 250,000+ traders and has taught over 25,000+ students since 2008.

This is because an attempt at directionality was made, and failed, and the market has now lost confidence in that break and looks for action in the opposing price range. 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.

In this case, you will enter a trade intending to capture small price movements inside a range area, hence, support and resistance levels. 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. As mentioned previously, the inside bar represents a period of short-term consolidation with low volatility within a trending market.

In other words, it shows the shift in the market which can be due to various reasons.However, the most important thing you should note is the price consolidation. So, forex traders should prepare for price movement after the consolidation. The second way to trade the inside bar pattern is the inside bar breakout trading method, which many believe is slightly more exciting to trade. This time, we identified the inside bar formation with a very large bullish candle followed by a smaller bearish candle covered by the first candlestick. As mentioned, the inside bar candle pattern can appear in a downtrend or an uptrend and indicate a reversal or trend continuation.

There is a dizzying amount of indicators, chart patterns…even types of charts. 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.

The inside bar is a two-candlestick pattern that signals trend continuation or reversal. The first candle of the pattern is usually large, called the mother candle, while the next candle is a small candle having low wicks, and is called the baby candle. In another case, when the mother bar does not appear, it’s also called the abandoned baby candle pattern.

Previously, you’ve learned how Inside Bar allows you to catch reversals in the market. Instead, for my Inside Bar strategy, I prefer for the price to make the reversal move first and then form an Inside Bar. Many traders love to trade Inside Bars at market structure (like Support and Resistance). That’s not smart because it’s a low probability trade especially when the market is in a “choppy” range. And volatility in the markets are always changing, it moves from a period of low volatility to high volatility (and vice versa).

If you trade every single Inside Bar signal, you WILL blow out your account. To get notifications when Inside Bars print on your MetaTrader chart, you can use one of our handy alert indicators. Price action becomes “compressed” into a tighter range and at some point, it has to break out and resume normal volatility. The only thing that you have to take into account when identifying an Inside Bar is the high and the low of the previous bar. Nial Fuller is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading.

The pattern is neither bullish nor bearish, but it is instead neutral in its implications until a breakout occurs which then tends to result in a considerable follow-on move. Inside bar trading offers ideal stop-loss positions and helps identify strong breakout levels. You can create a successful risk management strategy and place successful trading orders with it.Our article will discuss the Inside Bar trading strategy and how to identify ideal price levels with the same.

So, as you can assume, there’s no one version of the inside bar pattern. If seen, a favourable Inside Bar setup can be taken advantage of with the right accompanying information and risk management to create positive trades. A breakout above or below the Inside Bar’s range serves as a signal to enter a trade, anticipating a price movement in the direction of the breakout. For example, you may see the Inside Bar candle pattern develop, but it seems to be testing the range of resistance or support. This might mean that the pattern is just a correct not a signal for a profitable Inside Bar setup.

The second candle has a small body, sometimes having low wicks, and is called the baby candle. The inside bar formation is completed when the second candle closes within the body of the mother candle. Adjust your risk management approach based on your risk tolerance, trading style, and market conditions. Effective risk management is about minimising the impact of those losses and preserving capital for future opportunities. The alternative approach to capitalise on the Inside Bar pattern involves the Inside Bar breakout trading strategy, considered by many as a more advanced trading method.

By incorporating these expert tips and strategies into your trading approach, you can enhance your decision-making process, increase the probability of successful trades, and minimize risk when trading inside bars. Before trading a trending Inside Bar, be sure that there is a strong trend in place. That may sound obvious, but many traders are so eager to enter a trade, that they don’t spend a few extra seconds examining the strength of the trend. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading.

In this case, price had come back down to test a key support level , formed a pin bar reversal at that support, followed by an inside bar reversal. Note the strong push higher that unfolded following this inside bar setup. As the trades result with a good risk reward ratio, trading losses due to false signals are lower. The reward offsets the risk significantly and enhances the end result in this trading strategy.

Some traders consider it a continuation pattern though a breakout in the opposite direction is possible too. After price has trended up (or down) for an extended period, the pause in price movement (represented by the inside bar) precedes a reversal of the trend. Therefore, the inside bar is looked at for a short-term trade (or swing trading) in how to trade inside bar the counter-trend direction with the goal of holding the trade for less than 10 bars. During a bullish inside bar candle pattern the entry is above the high of the second candle. You can place the stop loss below the second candle’s low.Similarly, during a bearish inside bar trading strategy the entry point is at the low of the second candle.