According to the first definition, an Inside Bar has a higher low and a lower high than the previous bar. According to the second definition, both the open and close of the Inside Bar are within the range of the previous bar’s open and close. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.

The Inside Bar Candlestick Pattern – Pros and Cons

  1. Still, the inside bar allows you to identify a pause in price action and a good market entry level before the next price movement.
  2. For example, I want to predict how the price will change after the next 30 minutes pass and go long or short accordingly to the forecast.
  3. Obviously, these are giving us VERY intelligent clues as to the next potential direction in price.
  4. This can be considered a failed breakout and such reversals can see a significant shift in market sentiment.

There are essentially two main ways we can look to trade inside bars, as with most other patterns; as a continuation signal or as a reversal pattern. The fakey trading pattern is very important in regards to inside bars because there is an inside bar pattern within a fakey. As you can see below, a fakey is actually a false break out from an inside bar pattern.

How to identify an inside bar on forex charts

Then, traders would look to go short on the break of the Inside Bar. As you can see, when the inside bar pattern appears, the RSI stands at around 40-45, a level indicating indecision and the market and, thus, the likelihood of consolidation. We added the Relative Strength Index (RSI) indicator as our confluence trading tool to see if the price continues with the trend, reverses, or stays in range mode. An inside bar pattern is a multi-bar pattern that consists of a “mother bar” which is the first bar in the pattern, followed by the inside bar.

Introduction to the Inside Bar Pattern

The market moves from a period of low volatility to high volatility (and vice versa). If you want to capture a swing, then you can exit your trades before opposing pressure steps in. When it comes to stop loss, you don’t want to set it just beyond the lows of the Inside Bar. Or, you can wait for the candle to close — but you risk missing a big move.

Inside Bar Pattern Price Action Strategy Explained With Examples

Moreover, the pattern could be either a trend reversal or continuation chart pattern, depending on the context of the markets. It is also one of the most frequently seen patterns that appear regularly in any market condition. So, as you can assume, there’s no one version of the inside bar pattern. While preparing a dataset, we train on our set of features a model the predicts a side (label one). And we also train a second model, that has as input all previous features and label one as well. So after having the prediction of a direction from a first model, we want to know the level of a certainty with the second model — and based on its output that is from 0 to 1 — we make an appropriate bet.

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. Now, don’t worry about how to set your stop loss or trade management because we’ll cover that later. 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.

We caution traders here because with low probability trades like this example, the market does not have a smooth range and it could prove more trouble than it is worth. This bar is still “covered” by the previous candle, but the range is larger than the standard. Depending on the close, the bar could represent indecision, trend, or a reversal within the market.

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 inside bar trading strategy volatility to high volatility (and vice versa). Now, depending on the close of the Inside Bar, this could represent indecision or a reversal in the markets. This is a standard Inside Bar candle where the range of the candle is small, and it’s “covered” by the prior candle.

This standard candle tells the trader that there is indecision and low volatility within the markets. The critical point here is the third candlestick that rises above the second candle and indicates that the price is likely to increase. To confirm that, we used a basic moving average indicator, and, as seen in the chart, the crossover occurs precisely at the formation of the mother candle (the first candle).

Many like this method because they enter the trade just as price moves in their favor. Please be mindful, however, that there is a possibility of a false breakout in this case. Traders could also wait for the candle to close, but this comes with the risk of missing a big move in the market. Our suggestion would be to find whichever method works best for you. This pattern tells the trader where there is low volatility within the markets. As market volatility is always shifting, it helps to see multiple InSide Bars together because it is a strong sign that there will be big movement in the markets.

The major difference between the two setups is that we are looking for weakness. Following the choppy market action of the inside bar, we closely monitor the lows of the inside bar candle. Once this candle breaks this low consider the inside bar active and the target for this potential trade is the low of the previous candlestick.