Inside Bar Trading Strategy

Nial Fuller is a professional trader, author & coach who is considered ‘The Authority’ on Price Action Trading. He has taught over 25,000 students via his Price Action Trading Course since 2008. By clicking the ‘Start 30 day free trial’ button you agree to our Terms of Service and Privacy Policy.

We can see a decent downside move occurred as price broke down past the inside bar’s mother bar low.. In the example image below, we can see the anatomy of an inside bar setup. Note that the inside bar is fully contained within the range of the high and low of the mother bar. You can have multiple inside bars within the range of one mother bar. If you see a pattern of consecutive inside bars that are “coiling” and all within the previous bar’s range, this can signal that a powerful breakout might be coming, more on this later.

Inside Bar trading strategy — Catch the trend

This is the guide to inside bar and support/resistance trading strategy. You should notice how the high and low on both the candlesticks are contained within the high and low of the candlestick prior to them, implying being inside the range of the prior candlestick. When we short the EUR/USD, we would want to place a stop loss order above the upper level of the inside range. As you see in this example, the EUR/USD decreases afterwards making this Hikkake trade a profitable deal. The Hikkake pattern is confirmed when there is an Inside Bar pattern, a breakout of the inside bar on the next candle, and then a reversal occurs, and breaks thru the opposite end of the Inside Bar. It is important that the breakout thru the opposite side occur within 2-3 bars of the original breakout.

That is, the strategy is the foundation with the inside bar seen as more of a prompt. The next stop placement is typically used on inside bars with larger mother bars. An inside bar is a bar (or a series of bars) that is completely contained within the range of the preceding bar, also known as the “mother bar”. The inside bar should have a higher low and lower high than the mother bar (some traders use a more lenient definition of inside bars to include equal bars).

The high degree of leverage that is often obtainable in commodity interest trading can work against you as well as for you. Optimus Futures, LLC is not affiliated with nor does it endorse any trading system, methodologies, newsletter or other similar service. The use of descriptions such as “best” are only for search purposes. Optimus Futures, LLC does not imply that you cannot find better tools or opposing valid views to our opinion. We do our best to share things based on our experience and scope of expertise.

NR4 and NR7 Trading Strategy Setup

That bearish candlestick than follows an inside bar, again at that same key resistance level which now just acts as additional confirmation to the lack of bullish strength in the market. To some, this is a notorious fact ultimately even leading to the disposal of this candlestick pattern from their technical analysis arsenal. For other smarter traders who know where to look for them, these puny looking candlesticks can be valuable pieces of information. Alternatively, inside bars can also point to periods of consolidation, and indecision prior to a pending breakout. In the examples provided throughout article, you saw that the standard inside bar and its variations can provide very attractive price action setups. And any trader, regardless of their trading style, can take advantage of and incorporate these patterns into their trading methodology.

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. In the fast-paced world of forex trading, having a reliable and effective price action trading how to trade inside bar strategy is one of the main keys to success. A strategy that Japanese candlestick chart traders often use is looking for and trading the inside bar pattern. This two-candle pattern can provide valuable trading opportunities when understood and used correctly. The timeframe in which the inside bar pattern appears plays an important role in its interpretation.

Basis of IB strategy

To reiterate, the stop loss on this short trade should be located above the high point of the inside day as shown on the image above. An Inside Bar potentially means that the price action recently dominated by the sellers is now weakening. An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar. 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. My goal is to help you master both the technical (strategies) and transpersonal (mindset) sides of trading so you can create more freedom in your life and be your truest expression of I AM.

You don’t need to know why Inside Bars happen, you just have to understand what the price action is telling you. I have been wondering how best to trade inside bars, and you have explained it so well. This means you could get a good R multiple on your trade in a short amount of time. So, if you trade a small range Inside Bar, it means volatility is low and there’s a good chance it could expand in your favour. If you want to capture a swing, then you can exit your trades before opposing pressure steps in. This is what we call a Hikkake Pattern (a false breakout pattern).

When the price action completes an inside candle on the chart, you should mark the low and high of the Inside Bar consolidation range. Since the Inside candle on the chart is a sign of a consolidating market, we can draw a horizontal support and resistance level around this range in anticipation of a future breakout. When the price exits the inside bar range, we expect that https://g-markets.net/ the price action will continue to move in the direction of the inside bar breakout. As a rule, professionals use the pattern to trade instruments on a trending market. The style and tactics used for the strategy refer to a so-called breakout play. If you plan to use key chart levels, you may benefit from counter-trend trading that mainly refers to the inside bar reversal.

Characteristics of a Profitable Inside Bar Setup

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. The inside bar is a popular reversal/continuation candle formation that only requires two candles to present itself.

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. Therefore, the inside bar is looked at for a short-term trade (or swing trading) in the counter-trend direction with the goal of holding the trade for less than 10 bars. Sometimes, when support and resistance or trendline breaks with a big candlestick then price again come back inward the key level. The chart above illustrates price accelerating into a key resistance area that is not as clearly defined by a narrow side to side support and resistance level but rather a thicker wedge pattern.

In this case, we were trading an inside bar reversal signal from a key level of resistance. Also, note that the inside bar sell signal in the example below actually had two bars within the same mother bar, this is perfectly fine and is something you will see sometimes on the charts. The InSide Bar Strategy is a candlestick pattern used to time entries with low risk. It can be used to follow and trade with a trend or show reversals within the market through its candles. InSide Bars vary in size and range of the candle body, with the smaller variants showing an indecisive market. The strategy is useful when determining market strength and to capture a swing or ride a trend on the exit.

• You should notice how the high and low on both the candlesticks are contained within the high and low of the candlestick prior to them, implying being inside the range of the prior candlestick.
• There are several ways to trade inside bars that stem directly from the trader’s individual risk appetite and possibly the overall strength of the setup itself.
• The key is to be able to understand which levels are most likely to hold and which ones are just random lines on a chart.
• For many traders, it helps to have a specific definition of a trend.

The market moves from a period of low volatility to high volatility (and vice versa). And with a smaller stop loss, you can put on larger position size and still keep your risk constant. You can reference the low of the Inside Bar to set your stop loss (the smaller the Inside Bar, the smaller your stops). If you’re long, then you want to exit your trade before Resistance or swing high. This means if you set your stop loss just below the lows of the Inside Bar, you could get stopped out prematurely on a Bullish Hikkake Pattern.

You might have been lucky if your took a long trade, but over time, you’ll lose more of these trades than you win. This is one of the most popular technical chart patterns around and there are several trading strategies that utilize this pattern. Before we get into actual trading strategies, let’s see at what an Inside Bar looks like, what it can tell us, and why it happens.