There are hundreds or even thousands of different strategies, systems or techniques that you can use when trading forex or any other market. A spiral setup consists of two or more inside bars, with the previous bar acting as a mother bar to the next one. Bar patterns represent just one aspect of a price-based trading plan. As the lower volatility comes within the context of seven bars, instead of a single bar like in the case of an inside bar, the NR7 pattern is a stronger sign of decreasing volatility.

However, the most important thing you should note is the price consolidation. So, forex traders should prepare for price movement after the consolidation. This is an example of a bearish inside bar setup where there are multiple candles contained with the range of the mother candle. The bearish candle with an up arrow pointing to it, is the first candle which breaks the low of the mother candle, if you were trading this setup you would have been entered into your trade at this point.

Inside bar: good things come in small packages

This time, we identified the inside bar formation with a very large bullish candle followed by a smaller bearish candle covered by the first candlestick. So, you cannot trade every single inside bar the same, as you may not know if the trend will reverse or continue. Instead, it would be best to interpret the pattern differently on the market scenario and decide the next price direction. Still, the inside bar allows you to identify a pause in price action and a good market entry level before the next price movement. Traders should open a position when the price is still within the range established by the inside bar or when the price breaks just above the upper level of the inside bar.

Of the price action strategies we use here at Daily Price Action, the inside bar is the least common. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. The image above is a recent example of how you could have used inside bars as a method of scaling into trades. With our pending order placed all we need to do now is wait for the market to break the low of the mother candle. Inside bars can be traded in two ways, one way is a high probability setup whereas the other is a low probability setup.

The next stop placement is typically used on inside bars with larger mother bars. This price reversal occurs even though the pair was trending up in value, exhibiting multiple signs of a profitable setup. The risk of a price reversal has to be accounted for whenever you’re trading on inside bars. This is why a stop-loss is so important to building a sustainable trading strategy.

After the bears are exhausted, the bulls will take over, and the market will rise. Momentum is an excellent measurement to identify potential weakness in the… And with a smaller stop loss, you can put on larger position size and still keep your risk constant. If you want to capture a swing, then you can exit your trades before opposing pressure steps in. Or, you can wait for the candle to close — but you risk missing a big move.

HowToTrade.com helps traders of all levels learn how to trade the financial markets. Generally, the longer the time frame, the better the signals the inside bar pattern provides. However, the pattern is certainly more suitable for short-term trading techniques.

What Are Inside Days?

Pay special attention to a combination consisting of an inside bar and a pin bar. This pattern is traded like a regular inside bar, i.e. when a price breaks out above or below the mother bar. If there is an uptrend, a bullish pin bar inside bar trading strategy indicates an upcoming breakout upwards. If there is a downtrend, a bearish pin bar signals that a price is going to break out downwards. The breakout of the inside bar candlestick should be in the direction of a trend reversal.

You can apply plenty of trading strategies when trading inside bars. As mentioned, the inside bar candle pattern can appear in a downtrend or an uptrend and indicate a reversal or trend continuation. We can also see a good example of an inside bar that acted as a reversal or turning point signal. Inside bars typically occur as a market consolidates after making a large directional move, they can also occur at turning points in a market and at key decision points like major support/resistance levels.

ZigZag pattern in Forex

The next candle which comes after the inside bar breaks the upper level of the range. As you see, the price begins to reverse afterwards, and within the next two bars, the price decrease leads to a break of the lower level of the range. This confirms the Hikkake pattern on the chart, and with that, we should get ready to initiate a trade to the short side.

When an inside bar occurs at a support/resistance level, it’s often accompanied by false signals preceding a trend reversal. Trading with technical tools like candlesticks is a highly specialized practice and therefore, must be done carefully. Spotting inside days is of interest to a trader because he may believe that the subject security is setting up for some sort of move up or down. The application of another technical tool could give them sufficient confidence to place a bet on a potential pending move in the security price.

For example, the inside bar pattern could also be formed with a large first candle and a second tiny Doji candle. Technically, as long as the first candle covers the second candle, then it’s an inside bar pattern. Let’s switch to the H1 chart of USD/CAD and examine the first and the last inside bar in the daily time-frame. I prefer smaller and “tighter” inside bars that don’t have really large mother bars…this shows more ‘compression’ and thus a stronger potential breakout from that compression.

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. The market moves from a period of low volatility to high volatility (and vice versa). So, a better way to set your stop loss is 1 ATR below the low of the Inside Bar (for long trades) — so your trade has more “breathing room”.

In the above example after the closing of the second candle you could validate the presence of inside bar candlestick pattern. Once the pattern is validated the price indeed reversed its direction and moved upwards. The same holds true for the bearish inside bar pictured above – the formation at the lower range of the mother bar is more favorable as it provides you with a better risk to reward ratio.

A bullish reversal bar pattern goes below the low of the previous bar before closing higher. Hypothetical performance results have many inherent limitations, some of which are described below. Then, traders would look to go short on the break of the Inside Bar. That’s not smart because it’s a low probability trade especially when the market is in a “choppy” range. Many traders would spot an Inside Bar and they’ll trade the breakout of it.

Again, this assumes that you are placing your stop loss above the high of the inside bar rather than the high of the mother bar. Notice how the bullish inside bar above formed after USDCAD broke out from multi-week consolidation. This period of consolidation allowed the market to “reset”, or shake out profit takers and attract new buyers for the next leg up.

If, however, the candles have equal high and lows, this is not an inside bar formation. However, while the inside bar shows no strength in either direction, the NR7 pattern might drift upwards or downwards. In such cases, the NR7 represents a price thrust with decreasing volatility. A clear rejection of a downward thrust is a bullish reversal, and a clear rejection of an upthrust is a bearish reversal. When the market rejects such a strong bearish move with certainty, it might have reversed its sentiment to bullish.

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. Here’s another example of trading https://forexhero.info/ an inside bar against the recent trend / momentum and from a key chart level. In this case, we were trading an inside bar reversal signal from a key level of resistance.

• If a price breaks through the high of an Inside Bar, bullish signal is generated, and vice versa.
• Once the consolidation is over, you can expect the prices to continue in the trend direction.
• In the D1 chart below, you can see some beautifully formed inside bars.
• The direction of the breakout determines the direction of the trade that should be opened.

This tells you there are indecision and low volatility in the markets. The image illustrates an inside bar on the graph, followed by a Hikkake pattern. 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. The proper location of your stop loss is slightly beyond the inside candle’s top, or bottom, depending on the direction of the break.

Projecting the potential move with Inside Bar Breakouts can be challenging. Often Inside Bar trades can lead to a prolonged impulse move after the breakout, so employing a trailing stop after price has moved in your favor is a smart trade management strategy. Unlock our free video lessons and you will learn the exact chart patterns you need to know to find opportunities in the markets. Learn the exact chart patterns you need to know to find opportunities in the markets. No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses.

It also means that Inside Bars can be traded by placing the stop pending orders. Here is another example of an inside pin bar (inside bar + pin bar) in the GBP/USD chart (see below). The inside bar occurred slightly below the resistance level, preceding its breakout. After a price crossed EMA 8/21, a new trend started to steam up following the formation of an inside bar. The breakout of a mother bar indicated that the price would continue to go up, which is exactly what happened. The second inside bar formed within the range of the first inside bar.

Because indicators can also save a lot of time, you can’t sit in front of the screen looking for an inside bar candlestick pattern. However, it will be good if an indicator alerts you once an inside bar pattern forms, and then you can check yourself to make a perfect decision. My goal with this article was to show you how trading inside bars can not only be very simple, but also very profitable if you know what you’re doing. I think in the grand scheme of things you should learn how to trade inside bars after you have mastered how to trade pin bars and engulfing candles.

In this lesson, we’re going to discuss the five characteristics of a profitable inside bar setup. But before we do that, let’s first take a look at how an inside bar forms and what the pattern represents. An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar. Some traders use a more lenient definition of an inside bar that allows for the highs of the inside bar and the mother bar to be equal, or for the lows of both bars to be equal. However, if you have two bars with the same high and low, it’s generally not considered an inside bar by most traders. Regarding the body of Inside Bars, it usually does not matter that much if it is bullish, bearish or neutral.

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.