Master Inside Bar Strategy for Trading Success

However, the session ends with neither party taking control, marking indecisive market sentiment about which direction the price will move next. Compared to inside bars, pin bars are single-candlestick formations that indicate a rejection of further price movement in either direction, similar to dragonfly and gravestone dojis. The significance of pin bars comes from their structure rather than their color.

Another way to place them would be near the 50% level of the mother bars (middle of the high and low of mother bars). Remember to use smaller or tighter stop losses, in case the mother bars are not too big. Stop losses have to be used, irrespective of the strategy you use. Usually stop losses are put at levels above or below the high and low of the mother bar, respectively, depending on whether you have a long or short position. These typically reflect a period of consolidation within a trend before making another strong move in the same direction, but they can also indicate potential reversals off inflection points. The high probability way of trading inside bars is when they’re used as a continuation signal in an already existing trend.

Should I Use Leverage with Inside Bar Strategies?

The power of this method is that the price has a rapid reversal after the initial breakout from the Inside Bar. If that reversal does not occur relatively quickly within the first breakout, the chances of it being a valid trade are less. Remember, this rule focuses on the highs & lows relative to the Inside Bar, not the parent bar. Trends can be the most profitable market condition to make money if a trader can find a reliable entry mechanism—that is where an Inside Bar Pattern can help.

How Reliable is the Inside Bar Pattern?

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. Traders wait for the price to break out above or below the inside bar, and then enter the trade in that direction, hoping it will lead to a strong trend. The chart on the right is a 15-minute footprint, showing how the bullish breakout at the 53,200 level unfolded. The added Delta indicator helps illustrate the activity of buyers and sellers. However, it isn’t a setup that occurs often, at least not in a favorable context. This is why I don’t advocate using the inside bar as your only setup to trade the market.

1. This sideways price action represents consolidation, which is what you want to avoid when evaluating an inside bar setup.
2. It forms when two consecutive candles (bars) stay entirely within the range of the previous candle.
3. We computed the range of the inside bar as a fraction of the range of its preceding bar.
4. You can see that buyers were trapped at the top of the previous candle.
5. Usually stop losses are put at levels above or below the high and low of the mother bar, respectively, depending on whether you have a long or short position.

Note the strong push higher that unfolded following this inside bar setup. 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. Our main goal is to focus on what truly matters—price action—while avoiding false signals that can arise from using technical indicators without considering the proper price and market context. In this market environment, where the trend did not reverse but instead shifted to a sideways movement, means that market sentiment remains uncertain for this trade.

If an inside bar closes higher than it opened, it is a bullish bar suited for long trades. This is because it shows momentum in our favor, confirming that the trend is with us. There are several ways to trade inside bars that stem directly from the trader’s individual risk appetite and possibly the overall strength inside bar trading of the setup itself. When an inside bar breakout happens, it means the market is moving out of a calm phase and into a new trend.

For other smarter traders who know where to look for them, these puny looking candlesticks can be valuable pieces of information. As practice shows, the smaller the size of the inside bar in relation to the mother candle, the better the chance of getting a profitable trading setup. Recall that the inside bar represents a consolidation after a strong trend. Consequently, the denser the consolidation, the more volatile its subsequent breakout will be.

In contrast to the previous example, in this trading scenario, we will utilize an inside bar strategy to trade against the prevailing trend, betting that the price will move in the opposite direction. To do this, we will use one of the most popular technical indicators—specifically, an oscillator—the relative strength index (RSI). However, we will not use the RSI merely to indicate whether the asset is overbought or oversold; instead, we will leverage its ‘leading’ capability as a divergence tool. Simply put, a divergence occurs when the price and a technical indicator move in opposite directions. One of the ways the market re-groups is through a period of consolidation within a broader trend. Price consolidation occurs in uptrends, when market players who are long start selling for profits.

1. This helps them set up their inside bars in line with the market’s direction.
2. The pattern has stood the test of time across many markets—Forex, stocks, indexes, and cryptocurrencies.
3. Putting it into the larger perspective is often the key to filtering the high probability ones.
4. You can also activate the Free Trial at any time, giving you 14 days of full access to all the platform’s features.
5. As mentioned above, the inside bar is a two-candlestick pattern that may appear in any market scenario.

Defined as (usually) a smaller ranged bar that is totally engulfed by the bar prior to it – these are great to identify halts in momentum that can serve as a crucial cue when looking for trade setups. The general signal of an inside bar is given once price breaks out of the range of the inside bar on the next candle. To use the strategy, traders wait for the inside bar to form and then look for a breakout above the high of the formation to enter a long position or below the low to enter a short trade. A stop-loss order is typically placed below the low of the pattern in a long trade and above the high of the pattern in a short trade.

What is the 3 inside bar strategy?

Using the inside bar in a trading plan needs careful analysis and knowing the market well. Skilled traders often use extra indicators to check the signals from inside bars. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade. When combined with other tools or indicators, trading with the inside bar provides an excellent and straightforward smart trade management strategy.

However, when you know what to look for, these setups can be quite profitable. For more information on trading inside bars and other price action patterns, click here. The first candlestick must be bearish (red or black) and if the second candlestick is completely contained by the first, set a sell stop order at the first candle’s low minus 10% of its range (high minus low).