If it closes the same color as the mother trend bar, then it signals an early breakout and continuation of the original trend. The three inside bar strategy was discovered by Johnan Prathap in 2011. 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.
Inside bar strategy guide 2
Use stop-loss orders at the opposite end of the inside bar. One mistake is thinking a bar is an inside bar when it’s not fully covered. 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.
- On the other hand, since the harami is a reversal pattern, the volume should ideally be significant (above average).
- Buy when the price pushes above the mother bar’s high, and sell short when it drops below the mother bar’s low.
- Investing in Stocks, Commodities & Currencies may not be right for everyone.
- The Inside Bar pattern is most effective on a daily time frame.
Example Scanners Based on The Inside and Outside Bars
This pattern is most reliable on higher timeframes. From our experience, the daily and 4-hour charts provide the most trustworthy signals because they filter out insignificant market “noise.” This pause signifies a temporary equilibrium where neither buyers nor sellers are strong enough to push the price beyond the previous period’s top or bottom. It’s a “calm before the storm,” indicating that energy is building for the next significant price move – often a decisive break in patterns like the cup and handle bar formation. HowToTrade.com helps traders of all levels learn how to trade the financial markets. In a nutshell, here are the main takeaways from identifying and trading the inside bar chart pattern.
60-90% of retail investor accounts lose money when trading how to trade inside bar CFDs with the providers presented on this site. The information and videos are not investment recommendations and serve to clarify the market mechanisms. The texts on this page are not investment recommendations. These include high risk-reward ratio analysis, trading plans, low time commitment, and knowing exactly when to (and not to) trade. WR Trading education is comprehensive and designed for smarter, profitable trading.
Minute Inside Bar Strategy
Follow the following steps of inside bar trading strategy 1. Support and resistance zones represent strong key levels. When price breaks those key levels, it tends to move to the next key level. The Fibonacci tool is a powerful natural tool and I have used it to adjust take profit level. Remember that whenever the market is moving like a broadening pattern or inward pattern then it is always looking for direction. I will recommend you go through the previous article on the inside bar patterns to learn these inside bar strategies effectively.
Note the strong push higher that unfolded following this inside bar setup. The inside bar is a two-candlestick pattern that signals trend continuation or reversal. The first candle of the pattern is usually large, while the next candle is a small candle with its high and low range contained within the high and low range of the previous bar. The first candle is called the mother bar, while the second candle is also called the baby candle. In another case, when the mother bar does not appear, it’s also called the abandoned baby candle pattern.
But success with this strategy isn’t about spotting every inside bar; it’s about knowing when not to trade. Patience, context, and confirmation are everything. While inside bars can be highly reliable, many traders get trapped by false breakouts or misuse the setup entirely.
How Do I Avoid False Breakouts with Inside Bars?
- Sometimes inside-bar breakouts create what is known as a Fakey pattern.
- This is because the candle itself can form the entire trade setup.
- By now, you’ve identified the inside bar pattern within some volume behind it and a clearly trending market with confluence.
- The information and videos are not investment recommendations and serve to clarify the market mechanisms.
- The inside bar strategy often focuses on a breakout above or below the mother bar.
Traders simply wait for the false breakout (i.e., when the price breaks below/above the formation before closing back quickly in its range) before entering the opposite trade. Look out for price action patterns like pin bars or candlesticks with small bodies and long wicks. However, in terms of significance, they are more similar than many other candlestick patterns. This is because both represent a period of indecision and uncertainty about the direction of the price movement.
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. On the other hand, any timeframe longer than this may be too spread out for the Inside Bar pattern to provide ideal market continuation or reversal signals. The Inside Bar can be identified in two easy steps – 1.
Ten Pillars of Sustainable Trading Success in 2025
Looking to try out the inside bar trading strategy? It covers what this pattern is, how to trade it, and how to manage risks. If a bullish Inside Bar forms after a significant downtrend, it could indicate that the market is preparing for a bullish reversal. Entering a long position when the price breaks above the Inside Bar’s range can be a profitable strategy. If an Inside or Outside Bar is combined with other candlestick patterns, including a Hammer or Doji, it could bring extra information and higher chances of a successful trade. Be sure to watch such combined patterns for additional signals.
How do I manage risk when trading inside bar patterns?
It’s important to note that these are the ‘classic’ or standard entry and stop loss placements for an inside bar setup. Experienced traders might choose different entry points or stop loss placements based on their strategies and preferences. Stop loss placement is typically at the opposite end of the mother bar or near the halfway point (50% level) of the mother bar, especially if the mother bar is larger than average. Yes, using multiple inside bar formations can be beneficial.
step 5: establish profit targets
This is the most common and reliable way to use the pattern. In a strong market trend, an inside bar forms during a shallow pullback. A breakout above the Mother Bar is a trustworthy continuation signal to join the trend.
Both its body and its wicks must be inside the mother bar’s range. The inside bar’s wicks must not extend beyond the mother bar’s wicks. 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. As you can see, the inside bar Forex strategy is a useful strategy for Forex traders. There are concrete methods available for using inside bars, and what you use will depend on your personality, what you want to achieve, and of course, your own proficiency level.
The classic and most widely utilised stop-loss arrangement will be precisely above or below the mother bar high or low. The typical action is to go with 1 pip over or below the mother bar high or low. There is no necessity in trying and figuring out the best distance above, or vice versa below the preceding bar – the trade either performs well, or it doesn’t. A few pips will not create a great difference over the long run in these instances 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.