Inside Bar Pattern in Detail for Forex Trading


What is an Inside Bar Pattern in Forex?

Inside bar is a pattern of candlesticks that includes two candlesticks. The most recent candlestick will be formed within the range of previous candles.
This is the most popular candlestick pattern, and it has a clear logic. If you use it correctly, you can be a profitable trader.

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How to identify inside bar pattern

The inside bar candlestick pattern has the mother candle as the second candle, and the new candle as the inside candle. The high and lowest of the inside bar candlestick will fall within the same range as that of the mother candlestick.

  • Mother candlestick (MB).
  • Inside bar candlestick (IB)

inside-bar

Inside bar candlestick: Information Table

Features Explanation
Number of Candlesticks 2
Prediction trend reversal/continuation
Prior Trend N/A

What does inside bar candlestick tell traders

Indecision in markets is represented by the inside candlestick pattern. This is a sign that the trend is continuing or reversing in forex markets.

If an impulse wave causes an inside bar to form, it is trying to send traders a message that the market is deciding about its future direction. The market’s future direction is determined by big traders and institutions when the inside bar breaks.

Let me show the structure within the bar pattern. This clearly shows the indecision of the market as it moves inward. Every wave that follows will be smaller than the one before. This is also a sign of the market’s upcoming storm.

inside bar structure

It is natural that It’s the calm before a storm

Characteristics of best inside bar pattern

You will see the inside bar form many times a day on the chart for different currency pairs. However, is every inside bar pattern useful? No!

Certain criteria/parameters are used to distinguish the best inside bars from others. These criteria will help you to make a winning trade if the inside bar pattern is in line with these criteria.

The location of the inside bars pattern is the main criteria. It will not work if inside bars form within a market structure, that is not a reversal.

Inside bar location on chart

  • Key levels (support/resistance level)
  • Fake out level (inside bars formation after faking it out in the marketplace)
  • Trend lines (after trendline breakout)

Moving average (formation inside bar after moving-average breakout).

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Is inside bar a bullish or bearish pattern?

The inside bar pattern is neither a bullish pattern nor a bearish pattern. Breakout of inside bar candlestick decides the future direction of the market.
In simple words, we can say

  • If the high of the inside bar candlestick breaks, then the market will stay bullish.
  • If the low of the inside bar candlestick breaks, then the market will stay bearish

How to trade inside bar pattern

Combining the inside bar with the moving average breakout creates a winning breakout trading strategy.
A moving average breakout is already indicative of a trend reversal for a currency pair.

If an inside bar appears just after the MA breakout, it is a sign that the decision zone has been reached. Price will decide whether to reverse the trend or return to the MA to continue its current trend.

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You will need to understand these confluences. If the moving average breakout occurs in a bearish direction and the inside bar breakout occurs in a bullish direction, then both confluences will be against each other. We will therefore prefer to avoid this.

We want them both to move in the same direction. If the moving average breakout occurs in a bearish trend, then the inside breakout must occur in a bearish trend.

It makes sense, This setup increases the likelihood of a trend reversal after an inside bar breakout.

Strategy for inside bar breakout

A moving average breakout is when a big candlestick breaks through the moving average line, and then closes on the opposite side of the MA line.

Candlesticks must have a large body ratio.

Inside bar breakout refers to the breaking of a high or low inside bar candlestick.

To find a trade setup, follow the three steps below in a sequential order.

  • Exponential moving average line (21 period)
  • Breakout of EMA with a big candlestick (avoid Doji candlestick at breakout level)
  • Identify inside bar formation after EMA breakout

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Once a trade setup is identified, the breakout of an inside bar will determine whether to trade it or not.

Sell trade setup

The inside bar of the sell trade setup breaks in the direction for bears. It formed with a low number of inside bars.

Placing a pending sell order (sell stop order), below the low point of the inside bar. You must immediately delete the stop order if the inside bar’s high breaks before its low point.

Only inside bar sales are allowed.
The stop-loss level is a few pips higher than the highest of the inside bar. When adjusting the stop loss, remember to include spread

Fibonacci extension tool within bar trading strategy calculates the take-profit level. Use the trend-based Fibonacci extension to your trading view platform.

Drag the tool from high to low on the big candlestick, then connect the third point with the high of your inside bar.

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There are two take profit levels

  • 1.272 Fibonacci extension level
  • 1.618 Fibonacci extension level

inside-bar-pattern-sell

This is an easy inside bar breakout sell trading setup.

Buy trade setup

This is the opposite to a sell-trade setup. Breakout of MA must occur in a bullish direction.
Place a buy stop order at the top of the inside bar.

If the low end of the inside bar is broken before the high, we will immediately cancel the pending order.

The stop-loss level is below the low end of the inside bar.
Use the Fibonacci extension to to identify take profit levels. Only two levels of take profit will be used

  • 1.272 Fibonacci extension level
  • 1.618 Fibonacci extension level

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This is the best inside-bar strategy that relies on price action.

Conclusion

The inside bar candlestick design is a natural one. It works and will continue to work because it reflects a natural trend. Try to understand the psychology of this pattern and then trade it.

In the next article, I will discuss the 3 most advanced inside bar strategies that use price action.

Understanding the price action logic is key to creating a trading strategy. This will allow you to automatically capture the best trades using a single chart view.

FAQs

Is it important to choose the right color for the inside bar candlestick?

The color of the inside candle is irrelevant. Because the inside bar is indecision. Only the market’s direction can be determined by the breakout of its inside bar.

Which is the best time to trade the inside-bar candlestick?

Trading inside bar patterns is best done in a daily timeframe. You can trade the inside bars on 30M and any other timeframes above 30M.


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