Another variation is the Inside Bar with Wick Rejection, where the Inside Bar candle has a long wick on one side. A long wick indicates price rejection, meaning that either buyers or sellers tried to push the price in one direction but failed. If the price breaks below the low of the Inside Bar, it signals that sellers are regaining control, making it likely for the downtrend to continue. A trend continuation is likely if the breakout aligns with the current trend, while a reversal may occur if the breakout moves against it. Inside Bars are widely used in technical analysis due to their simplicity and potential to catch strong price movements. They can be found in various time frames but are more reliable in higher ones like the daily chart.

To avoid it, always wait for a strong candle to close outside the preceding candle’s range as confirmation. Additionally, prioritize trading breaks that align with the direction of the dominant, higher-periods trend. This pattern can also signal a reversal when it forms at a major support or resistance level after a long, extended trend. A break against the previous trend from one of these key levels can indicate a significant shift in the market. The Fakeout, also known as a “Fakey”, is a powerful reversal signal.

• To use inside bars well, traders need to know what they look like and how to spot them correctly.
• But sometimes, after the breakout, the price again closes inside the key level.
• The information and videos are not investment recommendations and serve to clarify the market mechanisms.
• Now, depending on the close of the Inside Bar, this could represent indecision or a reversal in the markets.

What Is The Best Price Action Trading Strategy?

It’s clean, easy to spot, and offers a structured way to enter trades with precision. Let’s take a closer look at how the inside bar pattern works and how to trade it. The trendline and inside bar strategy is easy to spot and it has a high winning probability as compared to support/resistance. This is the guide to inside bar and support/resistance trading strategy.

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step 2: wait for the first 30 minutes of price action

• Ready to use the inside bar trading strategy in the live markets?
• InSide Bars vary in size and range of the candle body, with the smaller variants showing an indecisive market.
• As the balance between buyers and sellers is relatively equal price simply maintains a steady level.
• Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education.

This is because an attempt at directionality was made, and failed, and the market has now lost confidence in that break and looks for action in the opposing price range. As the price action continues, watch for any signs of buying pressure in the current candle, that being the candle following the close of the inside bar. Should the market equilibrium give way to buying pressure the most important level to break is the inside bar high. Once this prior consolidation resistance is broken the Inside Bar can be considered to be in a bullish breakout. The target for this breakout is the high of the previous candlestick. As price moves within the range be cautious about the potential for a reversal pattern to form.

What Is an Inside Bar Pattern?

Inside Bar patterns are reliable in strong trending markets and higher time frames. In consolidating markets, however, they may lead to inside bar trading strategy more false signals. By learning how to trade Inside Bars and recognizing their structure, traders can improve accuracy in predicting price movements and managing risk. Remember, successful trading with Inside Bars relies on carefully identifying Inside Bar patterns, understanding market conditions, and applying a well-structured exit plan. This often occurs in choppy markets or when the breakout lacks momentum. To avoid falling into a fakeout, traders should wait for additional confirmation, such as strong follow-through candles or volume increase.

Rules to Identify a Valid Inside Bar Pattern

Daily and four-hour charts tend to provide clearer signals with fewer false breakouts. This approach helps you enter the market only when the price shows a clear direction, reducing the chances of getting caught in false moves. There are a few steps to follow inside bar trading strategy 3.

When trading inside bars, think about your overall risk and adjust your position sizes. This is when the market takes a break before moving again. The price range narrows, showing a balance between buyers and sellers.

An Inside Bar pattern consists of two candles or bars. The first is the “Mother Bar,” which has a high and low that completely engulfs the second candle, called the “Inside Bar.” In a nutshell, here are the main takeaways from identifying and trading the inside bar chart pattern. No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses. If you need more clarity on the market trend, you can place the 20 EMA indicator as a trend guide just as we did on the Meta chart up there.

Live prices may vary from other brokers and exchanges. Trading Forex, Futures, Options, CFD, Binary Options, and other financial instruments carry a high risk of loss and are not suitable for all investors. 60-90% of retail investor accounts lose money when trading 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. Part of our incredible mentorship is helping traders spot patterns like the inside bar.

This inside bar candlestick pattern signals a period of consolidation and contracting volatility. It visually represents a pause or indecision in the market, often indicating that energy is building for a potential breakout. 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. It is also known as inclined support or resistance level. When the inside bar forms at that resistance level, it is a clear indication that the market is deciding its future direction.

And if you want to ride a trend, then you can trail your stop loss as the market moves in your favor. Or, you can wait for the candle to close — but you risk missing a big move. This is what we call a Hikkake Pattern (a false breakout pattern). But the next thing you know, the market does a 180-degree reversal and collapse lower — and you’re sitting in the red. But for now, I want to share with you a “special” Inside Bar so you can profit from trapped traders. Now, you’ll learn how to use the Inside Bar strategy to catch the trend.

The Inside Bar pattern is significant because it represents a contraction in price movement, often preceding a breakout. This makes it a popular choice for traders seeking to capitalize on strong directional moves. An Inside Bar pattern is a two-candle formation that signals market consolidation and potential breakout.

Advantages and disadvantages of the inside bar trading strategy

Once you’ve identified a valid inside bar, you can start forming a trading plan. The first step is to look for a potential entry point. The inside bar strategy often focuses on a breakout above or below the mother bar. Some traders set a buy stop order slightly above the mother bar’s high, or a sell stop just below its low, so that an order triggers only if the market breaks out of the range.

However, they can also form at a market turning points and acts as a reversal signal from key support or resistance. Practice visualizing how each would work with current market setups. The pattern identification gets you in the game, but entry execution determines whether you win or lose.