The Inside Bar Trading Strategy Guide

bearish inside bar

Notice how the bullish inside bar in the above illustration formed at the top of the mother bar’s range. 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 you are wondering what an inside bar is, then here’s an explanation. This strategy is composed of a fakey setup, and it has a higher winning ratio if it is traded with the trend. For example, trendline and support/resistance breakout represents trend continuation.

IMPORTANT: From my experience I can say that it works best on timeframes above 4 Hours.

Sell the Forex pair when the price action breaks the lower level of the Inside Bar range. Buy the Forex pair when the price action breaks the upper level of the Inside Bar range. The Hikkake pattern is another variation of the inside bar candlestick. As you already know, in Forex trading nothing is 100% certain.

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In an up, the consolidation is triggered when longs decide to begin taking profits . This causes the market to pullback, where new buyers step in and buy, which keeps prices elevated. This pattern continues for days, weeks or even months until new buyers are able to once again outweigh the sellers and drive the market higher. 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. Even if you do not trade this setup, it can be used as a confirmation when used in conjunction with another trading system.

Fakey Trading Strategy (Inside Bar False Break Out)

A trendline is made up of at least three consecutive bounces of the price that make it a key level. When the inside bar forms at that resistance level, it is a clear indication that the market is deciding its future direction. Breakout of the inside bar pattern confirms the direction of the market. If the price breaks high of the inside bar, then it will continue its trend . Price will reverse its trend if it breaks the low of the inside bar.

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As you can see from the chart above, we have 5 different places in which inside bar trading opportunities took place. As described above, when an inside bar forms, there is a high chance of a final spike , therefore you must calculate for a wider stop loss. The chart above is taken from the AUDUSD pair from the 20th of June, 2018. Try to memorise those scenarios in order to better understand how to profit from the inside bar. The inside bar could be a very powerful tool for finding trading entries if used correctly.

Complex Inside Bar Candlesticks Formations

A long order in case of breakout of the extremum is placed several pips above the high. In the Inside Bar Candlestick Pattern, the second candle is smaller than the previous candle. It describes that the high of the second candle is lower than the first, and the low of the latter is higher than the first candle. The image illustrates an inside bar on the graph, followed by a Hikkake pattern.

Although not so famous, the inside bar trading techniques have been enticing more traders recently. Stop loss should be placed behind the nearest level behind the extremum of the inside bar or the mother candle. In the first case, there will be more losing trades, but the total loss will be less. Each transaction will not cause significant harm to the deposit. The inside bar should be small – you can put a short stop, there is no strong uncertainty in the market when stops are knocked down in all directions.

Your first inside bar trade should be on the daily chart and in a trending market. Your trading course is just that a simple straight forward approach to reading price action and entering once confirmation has taken place. I don’t know which article it was but I’m sure you have one relating to making sure you wait for a candle to close before entering a trade. The inside bar candlestick pattern is often not given enough importance, but I hope with this article to reach more traders who want to learn about it. From the simple bullish/bearish inside bar to the complex Hikkake candlestick pattern, I have walked you through the processes that lead to the formation of this pattern.

Inside Bar Trading Strategies with Timeframes

On the other hand, place pending buy stop above the inside bar candlestick in case of resistance zone breakout. For example, the market will tend to reverse or continue its direction from a resistance level. When the market price reached a resistance level, there it will decide either to break this resistance level or to reverse from this level. It is important to learn the structure of the inside bar pattern. It tells the traders that the market is looking for direction.

  • In theory it is supposed to be a bullish pattern, but practice has proven that on certain occasions it acts as a bearish harbinger.
  • Please be mindful, however, that there is a possibility of a false breakout in this case.
  • This pattern tells the trader where there is low volatility within the markets.

It is preferable to trade patterns for the continuation of the trend, they have a higher percentage of working out. Divergence and convergence – inside bars are considered after the appearance of a divergence between the indicator and price readings. There are a few steps to follow inside bar trading strategy 3. Keep remembering that in this fakey setup you will buy or sell in opposite direction as compared to the two strategies discussed in the above topics. The trendline and inside bar strategy is easy to spot and it has a high winning probability as compared to support/resistance.

Inside bar strategy guide 3

There’s no doubt that inside bars can be a profitable way to trade the Forex market. After all, it’s a setup that I teach as part of my price action courseand one that has served me extremely well since 2009. The only thing that matters is whether the mother bar is bullish or bearish. The formation of the mother bar, in combination with the trend, is what tells you which way to trade an inside bar setup. If using the more aggressive stop loss strategy, this means selecting inside bars that form near the upper or lower range of the mother bar. This allows you to achieve a much more favorable risk to reward ratio.

Here are a few types of bars that you will most likely use when utilizing the InSide Bar Strategy. Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. Thank u for this presise exeplanation with simple examples.

reward ratio

inside bar indicators can and do fail, but many times these failed patterns can offer nice trading opportunities for those whose are quick to recognize the fakeout. The green arrow shows the successful breakout of the inside day formation. Note that we did have two prior attempts to break to the downside, which did not follow thru immediately. The initial breakout turned out to be a Pin Bar formation. But regardless, if we had followed our stop loss placement rules, then we were never in any danger of getting stopped out for a loss on this trade. A period of consolidation within a broader trend is the market’s way of regrouping.

We will discuss some examples of how a trader can approach setting up a trade when they see this pattern on their chart. 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. A favorable risk to reward ratio is needed for any setup taken here at Daily Price Action.

It does not matter if the Inside Bar is bullish or bearish, all that matters is where the Inside Bar prints relative to existing price action. It is probably one of the least talked about candlestick patterns and probably the one that is most underestimated and least understood, as well. Inside bars should not be considered if the market is in a range.

Trading involves risk and can result in the loss of your investment. All information on this site is for informational purposes only and is not trading, investment, tax or health advice. The reader bears responsibility for his/her own investment research and decisions. Seek the advice of a qualified finance professional before making any investment and do your own research to understand all risks before investing or trading.