Inside bar is one of the patterns that can appear on the price chart, the shape of the inside bar is the opposite of the outside bar pattern, then how to trade inside the bar pattern?
Learning how to trade price action is simple.
But even so, it is a trading method that is preferred by many traders.
For beginners by learning how to trade price action will be the foundation before learning other trading methods.
Because the candlestick itself reflects market sentiment, when the bullish or bearish trend is strong, the candlestick has to give the necessary information.
Inside the bar is a candle pattern in which the first candle shows the strong movement or trend and then appears inside bar candle which is smaller than the mother candle.
If the outside bar candle has a longer candle shape than the previous candle, on the contrary, the inside bar has a smaller candle shape than the previous candle.
This pattern appears as a reversal signal but not infrequently is also an indication of the continued trend.
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Inside bar candle explained
Inside bar candle, is a candle pattern that has a higher low and a lower high than the previous candle.
Usually inside bar appears with two candlestick formations, but it does not rule out the possibility of two or three candles inside the bar that appears after the mother candle.
The first candle is bigger and called as a Mother Bar, while the second candle is a child candle or Inside Bar.
The first candle has a large volume, either a long bullish candlestick or a long bearish candlestick.
The second inside bar, which has a smaller volume than the preceding volume candle, can be either a bearish or bullish candle.
The image above is the basic pattern of the inside bar candle, maybe when you pay attention through the MetaTrader trading platform you can find a similar pattern, although not exactly the same.
It could be that the inside bar body is slightly smaller than the previous bar.
Or maybe only half the body of the previous candle.
The essence of the candle inside the bar pattern is, it indicates when a trend is either bullish or bearish, but it turns out the trend pressure has begun to decrease or weaken.
The appearance of the inside bar pattern is a reversal signal, but one must pay attention to the next candle because it could be a continuation of the trend.
Why inside bar formed?
Since prices move in one direction, or in other words in a strong trend, be they bullish or bearish, in time they will weaken.
Inside bar pattern is a condition where the trend is in a consolidation phase, this is a condition of the market trend indecision.
If the inside bar pattern has emerged, then this possibility will become a reversal pattern
Usually, the inside bar pattern is a short-term pattern where buyers or sellers have begun to be reluctant to lift prices up or down.
In a bullish trend, buyers are reluctant to lift prices to keep going up, and in a bearish trend, sellers are reluctant to press prices to continue falling.
But not always inside the bar becomes a reversal signal, sometimes the short-term movement is an indication of the continuation of the trend.
Inside bar trading strategy
It is important to note that Inside Bar patterns often appear after strong trend movements have occurred.
Note, after the Inside Bar has finished forming, it is very likely that the price will be pushed or pressured to the extreme.
Therefore, the Inside Bar pattern can be said to be a point of consolidation or indecision market before the price breaks out in one direction.
But for trading Inside Bars you should use confirmation from other indicators, for example, Bollinger Bands.
You can also use Simple Moving Average in period 20 as an alternative.
Now take a look at the image below as one example.
In the image above you can see the reversal pattern inside the candle bar is at odd numbers, 1,3 and 5.
While the signal for the continuation of the trend from the inside bar candle is marked with an even number, 2, and 4.
Then how do you distinguish Inside Bar trading from reversal or continuation signals?
The way to distinguish them is actually quite easy, we focus on the middle Bollinger line or the Simple Moving Average of period 20.
If the price is can not break the middle line.
The possibility of the magnitude of the Inside Bar shows the potential for a continuation of the trend.
Conversely, if the price moves through the midline.
Then the price has got a breakout and great potential to form a new trend direction.
In addition to using the Bollinger band indicator help, you can also use the Resistance or Support zone to determine the direction of price movements after the Inside Bar candlestick is formed.
Inside Bar breakout strategy
The appearance of the inside bar pattern indicates a weakening of a trend.
Then market participants are in doubt whether it is a reversal signal or a continuation of the trend..
Therefore the way to trade inside the bar often uses a breakout strategy, so we call it the inside bar breakout strategy.
What needs to be a concern in using this inside bar breakout strategy is to pay attention to key levels.
Or the formed support and resistance zones.
Using the inside bar strategy will be more effective for trend following.
Although it might be possible to do with counter trends, this method is riskier.
Below is an example of a EURUSD pair image, where there appears an inside bar pattern marked by a higher low and a lower high than a Mother bar.
The picture above the blue line shows the inside bar pattern has appeared, where the mother bar candle bar has filled all the inside bar candles.
We notice that this pattern has emerged in the key zone, support zone.
The black line shows the high to low range of the mother bar.
So an effective way of trading is to place a buy stop above the high mother bar and sell stop below the low mother bar.
Inside bar, the pattern indicates market indecision, so when prices break high or low on the mother bar candle.
It is likely a strong signal of the next trend movement.
Some conservative traders, they do not use pending buy stop and sell stop orders.
But will wait for the closing of the breakout candle and will place entry at that level.
Inside bar intraday trading
A timeframe that has high profitability is a daily timeframe.
Utilizing an inside bar on a daily timeframe provides a higher profit possibility.
The pattern that appears in the daily timeframe is more or less the same in any other time frame.
It’s just that the appearance of the inside bar on the daily timeframe reflects the response of market participants on the whole day.
When you find an inside bar pattern on a daily timeframe.
Meaning that the buyer or seller has failed to establish an up or downtrend.
Similar to the regular inside bar, this is a sign of market doubt or an indecision market.
Below is an example of the application of inside bar day trading on a pair EURUSD
The blue circle indicates that there has been an inside bar pattern at the daily time frame.
Marked by a candle which has a lower high than the preceding bar, and a higher low than the preceding bar.
Overall the mother bar candle or preceding candle is fulfilled inside the bar candle.
The black line shows the high to low of the range of the mother bar candle.
While the green line shows the success of the breakout, after the low break on the black line.
If we pay attention after the inside of the candle bar appears the pin bar pattern.
Where after the price breaks low from the black line then it forms a long wick.
But it turns out that this pin bar pattern fails to bring prices continue to move up.
After that, the price moves within the range of the mother bar candle until finally the price breaks low from the black line and becomes a successful breakout.
How to trade inside the day bar trading is the same as using the breakout method.
You can place buy stops several pips above the black line, and sell stop several pips below the black line.
Take profit setup
In all trading strategies, the most important thing is to determine the exit point.
In this case, using the inside bar pattern, we can determine the target profit according to the trading rules that are the top priority.
To determine the fixed profit target we can use a risk-reward ratio.
If we place a stop loss with a distance of 20 pips then we can set a target of at least 20 pips too.
This is a risk-reward ratio of 1: 1, you can use a higher risk-reward ratio like 1: 2.
Risk reward ratio of 1: 2 refers to the target profit twice greater than the stop loss distance.
But sometimes after breakout inside bar candle, especially when the market is trending.
This can provide a strong trend pressure so that by using a trailing stop.
You will have more chances of getting the maximum profit.
Forex trading is not only a matter of target profit but also risk has become a part of trading.
Placing stop loss is crucial in risk management.
How to determine and calculate the actual stop loss distance depends on each trader.
This is also related to total trading capital.
To be able to place a stop loss in accordance with the total risk that is ready to bear in a trading plan.
Then you must know how much value per pip from the size of your position.
For example, you use 0.01 lot and the value per pip is 0.10 $, each 10 pips price moves that will be worth 1 $.
So you can determine the amount of the stop loss distance if you risk an amount of 5 $.
In this case, your stop-loss is 50 pips of distance.
But this is not an absolute rule.
Some traders prefer to use the ATR indicator to calculate stop loss, others find support and resistance for stop loss.
Inside bar, strategy refers to the breakout trading system of price action.
So to place a stop loss you can use the high and low levels of the mother bar candle or the preceding bar.
Inside bar trading strategy pros and cons
Like all trading methods, it has imperfections in giving trading signals.
This is the advantage and disadvantage of using the inside bar strategy
- + Inside bar is a simple way of trading price action, the patterns that appear are easily recognized
- + This strategy can be used on all timeframes and all types of financial markets, you can use on forex trading, crypto and even stocks.
- + Clean and uncomplicated graphics, unlike using indicators, you will find it difficult to see high and low price details because they are blocked by indicator lines.
- + Easy to determine to stop loss, you only need to find the highs and lows of the mother bar candle.
- – The possible fake signal appears after the breakout occurs.
- – Requires comprehensive monitoring to find patterns, maybe you need to spend more time if you use a low timeframe.
- – Less effective when used to determine reversal patterns
Forex trading is how to look for high profitability, indeed there is no one perfect strategy.
Including using the inside bar trading strategy.
In practice, you must be able to discipline with the trading rules that you have agreed on.
It would be better if you have a small note as a trading journal.
Write down the reason you set the entry point and stop loss, also note how the results of the transaction.
In the future, you can reopen the small notes.
And will get something valuable as a valuable lesson in your trading career.
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