What Is The Inside Bar Candlestick Pattern & How To Trade With It

By combining the concepts of the Narrowest Range 7 (NR7) and the Inside Bar patterns, traders can try to gain insights into market consolidation and anticipate significant price movements. An Inside Bar is a candlestick pattern where the entire price range is contained within the range of the preceding bar. This pattern tries to signify a period of indecision or consolidation in the market, where neither buyers nor sellers have taken control. It serves as a visual representation of a pause in the ongoing trend, potentially indicating an imminent breakout or reversal. The inside bar pattern is important because it provides forex traders with valuable information about currency market consolidation phases and potential breakout opportunities.

The image illustrates an inside bar on the graph, followed by a Hikkake pattern. Sellers forced a break later that night, at around 1 AM on the day following that bar closing. And the trend then went on an aggressive downside run that I’ve highlighted with a red box. There could be some sub-optimal situations where inside bars print consecutively or, even worse, in a non-consecutive manner amidst chop and range.

In the chart below, we can see an example of a good inside bar reversal signal. Of critical importance here, is that the inside bar formed at a key chart level, indicating the market was hesitating and “unsure” if it wanted to move any higher. We can see a decent downside move occurred as price broke down past the inside bar’s mother bar low.. For example, if moving average breakout happens in a bearish direction then inside breakout must happen in a bearish direction.

This two-candle pattern can provide valuable trading opportunities when understood and used correctly. You can sometimes trade inside bars as reversal signals from key chart levels. Please note that this should ONLY be tried after you have successfully mastered trading inside bars in-line with the daily chart trend as continuation / breakout plays, as we discussed above. The NR7 Inside Bar strategy is an approach used by forex traders to try to identify potential breakout opportunities in the market. NR7 stands for “Narrowest Range 7,” which refers to a bar with the smallest price range observed over the past seven trading periods.

How to use the Inside Bar Candlestick Pattern?

After identifying these above two candlesticks, it will plot a label of the inside bar candlestick above/below the high/low, respectively. Enter Break of Engulfing Larger Candle

Inside Candle method is a great short term… It will draw real-time zones that show you where the price is likely to test in the future. https://g-markets.net/ You can notice on the chart below that right after the Inside Bar entrance; the Moving Averages are below the 0 level. The visual representation of this two-candle pattern resembles a smaller candle inside a larger candle. Check out the diagram below for an example of what an inside bar pattern looks like.

No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses. The first candle has a tall body, sometimes very large wicks, and is called the mother bar. The second candle has a small body, sometimes having low wicks, and is called the baby candle.

Timeframe

For more information on trading inside bars and other price action patterns, click here. Some traders like to use multiple moving averages to define a trend. They usually use 2-3 moving averages and when they are in order from shortest to longest inside bar forex period, that call that a valid trend. An Inside Bar (or candle) is a 2-bar pattern where a bar is inside the total price action of the previous bar. In other words, the Inside Bar has a higher low and lower high than the previous bar.

If you are wondering what an inside bar is, then here’s an explanation. One of the primary strategies for trading the inside bar pattern involves waiting for a breakout. After an inside bar forms, forex traders can set pending orders above the high or below the low of the pattern since they anticipate a breakout in the direction of the subsequent breakout candle.

Entering an Inside Bar Trade

This setup increases the probability of reversal in trend after inside bar breakout. It clearly shows us the indecision because the market is moving inward. The size of every next wave will be shorter than the previous wave. Look for an NR7 bar, which has the narrowest price range in the past seven trading periods. Enter Break of Engulfing Larger Candle

Inside Candle method is a great short term consolidation indicator.

The Fibonacci tool is a powerful natural tool and I have used it to adjust take profit level. As the Inside Bar has two candles, they can sometimes be more effective than a single candlestick pattern. But as we already mentioned, the best use of the Inside Bar is with other technical analysis and not on its own. Like any other candlestick pattern, the Inside Bar doesn’t give an exact entry and exit points. So, they should be used in combination with other indicators like moving averages.

Timeframes and Currency Pairs

If you are still struggling with drawing support and resistance levels, read this guide. However, the NR7 Inside Bar strategy also comes with its share of limitations. Traders need to be cautious of false breakouts and the possibility of missed trading opportunities during choppy or volatile market conditions. The subjective nature of pattern identification and the strategy’s focus solely on price action may not always account for broader market context and fundamental factors that influence price movements. The inside bar strategy 2 is composed of a trendline breakout and an inside bar breakout. A trendline is made up of at least three consecutive bounces of the price that make it a key level.

Though this might seem a bit confusing at first, it is quite simple once you take a bit of time to understand it. In order to confirm the Inside Day / Narrow Range of the last 4 days ( ID NR4 ) pattern, you will need to have and Inside Day Candle, which is also the narrowest Range Candle within the last 4 days. As odd as it is many aspects of trading analysis aren’t necessarily based on what’s happening as much as what isn’t happening. So, a buying signal is given once the third candle closes above the previous bar. Additionally, the volume provides another confirmation that buying pressure is building up.

More Indicators and Chart Patterns Explained

Now if an inside bar forms just after the MA breakout, then it indicates the decision zone. Price is deciding either to reverse the trend completely or come back inside the MA to continue its previous trend. In this price action training video I discuss the inside bar as a stall-pattern, not as a break-out pattern this time. The inside bar can often work as a strong turning point signal. The inside bar can lead to a number of different setups, and one of these is a stall and reversal, which I discuss in this video. When price breaks those key levels, it tends to move to the next key level.

Inside bars that occur within an established trend often indicate a continuation of the trend. In contrast, inside bars that show up at the end of a trend can signal a potential reversal. Forex traders should pay close attention to the context in which the inside bar pattern forms to determine its significance and to get a better sense of its possible breakout direction.

• For example, the market will tend to reverse or continue its direction from a resistance level.
• The strategy’s strengths lie in its simplicity, clear entry and exit points, and its ability to recognize potential trend reversals.
• The concept of the Inside Bar refers to a bar whose price range is fully contained within the range of the preceding bar.
• In this case, we were trading an inside bar reversal signal from a key level of resistance.

The same is in force for bearish breakout of the inside range, but in the opposite direction. In this case you could sell the Forex pair and you put a stop loss right above the upper candlewick of the inside bar. So as an informed price action trader, you should be looking for the break of the inside bar, which would provide a tradeable opportunity in the direction of the break.

How to Enter an Inside Bar Setup

The breakout occurs below the low of the ‘preceding bar’ thus triggering a short entry into the market. Had this breakout occurred above the high of the ‘preceding bar’ then this can signal a long (buy) entry indicating a potential reversal in trend. Trading against the trend carries more risk which leads to greater caution taken by the trader. 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.