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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.

So, as you can assume, there’s no one version of the inside bar pattern. An inside bar is a candlestick pattern where the high and low of a candlestick are within the high and low range of the preceding candlestick. This means that the entire price movement of one candle is confined within the price range of the previous candle.

The bullish inside bar setups above formed on the USDJPY daily time frame. Note that this pair was in a strong uptrend leading up to both setups. This is the kind of momentum you want to look for when trading this strategy. Trading with the Inside Bar strategy can help you identify strong market reversal or continuation signals.

1. As mentioned, the inside bar candle pattern can appear in a downtrend or an uptrend and indicate a reversal or trend continuation.
2. 5 — a bearish breakout of the previous candle’s low, which is an inside bar, is accompanied by bright red clusters on the footprint chart, indicating seller activity.
3. And in bearish trade, your stop loss will be at the high of your mother candle.
4. Keep in mind that we’re talking about the entire range of the candle from high to low, including its shadows.
5. Recognising this setup can benefit traders and analysts, as it offers clues about possible future price trends.

To see how exactly they can be used in these ways, we provide the following samples. Both scanners search the market for stocks using these candlestick patterns. In practice, the chance of making a profit with this simple approach is about 50% (not including costs). To gain a real advantage, traders should use advanced tools that show the dynamics of buying and selling activity, such as inside bar trading footprint charts.

A daily chart inside bar will look like a ‘triangle’ on a 1 hour or 30 minute chart time frame. They often form following a strong move in a market, as it ‘pauses’ to consolidate before making its next move. However, they can also form at market turning points and act as reversal signals from key support or resistance levels. The inside bar pattern is characterised by two consecutive candlesticks that often suggest a period of consolidation or indecision in the market.

How to trade an Inside Bar?

However, day traders can use lower time frames, but these may produce more false signals. I trade the major Forex pairs, some Futures contracts, and I rely entirely on Technical Analysis to place my trades. I began trading the markets in the early 1990s, at the age of sixteen. I had a few hundred British pounds saved up (I grew up in England), with which I was able to open a small account with some help from my Dad. I started my trading journey by buying UK equities that I had read about in the business sections of newspapers.

The Best Trend Continuation Chart Patterns

This does not have to happen immediately after the Inside Bar setup—when the price takes a long while to break out from the range of the parent bar, the subsequent breakout is often more decisive. However, there’s a slight controversy in defining the Inside Bar. Some traders define an Inside Bar based on the high and low of the bar, while others consider the open and close. 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. It is better to wait for a test of the breakout level before entering a long position at the green clusters, where buyers have shown their dominance.

All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform. The average profit per trade is $27.67 when trading 1 Bitcoin, excluding other factors. This pattern can occur either due to using a very small timeframe or because the market is in a flat. Market participants seem to be questioning if the current price fully reflects the recent positive news. The indicator highlights this area, reflecting a balance between supply and demand. 1 — the inside bar in the indecision zone that has been highlighted by the indicator.

1. You could consider entering a long position in the direction of the breakout.
2. Specifically, we are using the 20-period simple moving average (SMA) to act as dynamic resistance and a trailing stop, supporting the static structural pivot points.
3. In the example below, we examine trading an inside bar pattern against the dominant daily chart trend.
4. MACD is a unique indicator that can be combined with the inside bar pattern.

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It would be best if you considered the more extensive market context. As you can see, traders define a breakout differently based on how aggressive they are. Inside bars can be traded in two ways, one way is a high probability setup whereas the other is a low probability setup. Choosing the right trading journal is essential for traders wanting to analyze performance, refine strategies, and improve consistency.

A ranging market is when the price trades within horizontal support and resistance levels. These levels are rarely exact, and it is more practical to consider them zones instead. When there is a price zone instead of an exact level, the Inside Bar is a great way to signal to find a precise area to enter a trade in the zone. Inside and Outside Bars are two prevalent candlestick patterns in technical trading. The ‘Inside Bar’ is characterized by a bar or candle that is entirely ‘inside’ the range of the preceding one, whereas the ‘Outside Bar’ completely ‘overshadows’ or ‘engulfs’ the previous bar. It enables you to test trading inside bars and other patterns with footprint charts and/or other indicators, all without risking real money.

It is commonly understood that price action is just as relevant across all time frames, and while that is true, I will bravely want to disagree with that when it comes to inside bars. We focused on wide range inside bars that closed in the direction of our trade and ran our test again on several other futures contract to see if our results are robust. We also found that inside bars that closed in our trade direction and those with higher volume seems to have an edge. Inside bars that support our trades did considerably better than inside bars that did not. Both wide range and narrow range inside bars out-performed the benchmark substantially. However, the samples sizes are relatively small, especially for narrow range inside bars which gave only 32 trades.