inside bar trading strategy: The 5 Characteristics Of A Profitable Inside Bar Setup Leave a comment


The Hikkake pattern is another variation of the inside bar candlestick. Patterns 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 same is in force for bearish breakout of the inside range, but in the opposite direction. In this case you could sell the Forex pair and you put a stop loss right above the upper candlewick of the inside bar. The inside bar is a two bar candlestick pattern, which indicates price consolidation.

chart patterns

As such, there is not sufficient buying or selling pressure to break the previous bar’s high or low. CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms. The Keltner Channel or KC is a technical indicator that consists of volatility-based bands set above and below a moving average. An Inside Bar potentially means that the price action recently dominated by the sellers is now weakening.

  • The price action might reverse direction and quite possibly could break the range of the pattern from the opposite side.
  • Here’s another example of trading an inside bar against the recent trend / momentum and from a key chart level.
  • Below you will find some of the key points to keep in mind as you begin to trade this pattern on your own.
  • As a beginning trader, it’s easiest to learn how to trade inside bars in-line with the dominant daily chart trend, or ‘in-line with the trend’.

Therefore, we confirm that the inside candle is also the narrowest range day of the last 4 daily sessions. The image demonstrates an inside day with narrow range a.k.a the ID-NR4 Pattern. 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. When buying, place the stop-loss order just below the lower limit of the inside bar.

Fakey Trading Strategy (Inside Bar False Break Out)

An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar. Classical continuation patterns like the flat pattern, the pennant, the triangle, they are all continuation patterns in a market. You are actually taking advantage of traders who are “trapped” from the long breakout. The second is when the price is respecting the 10-period moving average. You can enter using a stop order when the price breaks out of the Inside Bar. So, you go long when the price breaks above the highs of the Inside Bar.

trade opportunities

An inside bar might forecast price volatility, but it doesn’t promise to deliver that movement on a fixed schedule. 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. By the time you wait for the price action to move swiftly in one direction, you’ve already sacrificed a huge chunk of your would-be profits.

In the examples provided throughout article, you saw that the standard inside bar and its variations can provide very attractive price action setups. And any trader, regardless of their trading style, can take advantage of and incorporate these patterns into their trading methodology. When you discover an inside bar breakout on the chart, you will most likely want to trade in the direction of the breakout.

Steps to Using the Inside Bar for Trading

He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month… I have been wondering how best to trade inside bars, and you have explained it so well. To the point explanation about the pattern like how to trade inside bar pattern and if there is any whipsaw use it in your favor and other important points. This means you could get a good R multiple on your trade in a short amount of time.

The Parabolic SAR, or Parabolic Stop and Reverse, is a trailing stop-based trading system and is often used as a technical indicator as well. Place only one order on a breakout in the direction of the primary trend. And, other variations are the continuation patterns like the flag pattern, pennant, triangle, etc. You can look to place a sell stop on it and eventually, price traded lower. And this is why you cannot break above the 10-period moving average. You can look to short and have a sell stop order on the lows, and stop loss above the high of the first bar.

What does an Inside Bar look like?

Notice how the pin bar failed to close within the range of the inside bar. This is considered a weak close as it signals that the bulls are not in full support of a move higher. The second image shows a pin bar that closed above the inside bar’s high. This is still a valid pattern because of the strong close by the bulls.

One way to think of an inside bar is to compare it to a volcano, where pressure is building underneath before an eruption. For traders, an inside bar can signal a price breakout coming in the near future, which creates a profit opportunity, whether you’re buying or shorting the asset. When looking at a candlestick chart, you can spot an inside bar indicator when a given bar’s high and low are fully contained by the bar directly preceding it. This signals a narrowing of price action that can be used to predict upcoming movements outside of this range. Inside bars typically offer good risk reward ratios because they often provide a tight stop loss placement and lead to a strong breakout as price breaks up or down from the pattern.

If you have been trading for any length of time I’m sure you have heard this one many times. As common as this saying may be, it has never lost its significance in the financial markets, especially when it comes to trading inside bars. It is important that the breakout thru the opposite side occur within 2-3 bars of the original breakout.

An aggressive would identify the ID NR4 breakout when the price reaches a few pips below the bottom of the pattern. In each case, it would signal that the consolidative range is ending in favor of a downward price movement. A trader could prepare to enter a short position, and put in a stop loss above the high point of the pattern as shown on the image. The best use of inside bars as a technical indicator is on daily charts.

Unlike the inside inside bar trading strategy, the pin bar is a reversal pattern that forms as a result of an aggressive push by market participants. Of the price action strategies we use here at Daily Price Action, the inside bar is the least common. 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.

So strong in fact that it formed a bullish engulfing patternas a result. Anything lower than the daily time frame is likely to result in a false break and should therefore not be traded. The inside bar is a strategy that is most effective on the daily time frame. However, it isn’t a setup that occurs often, at least not in a favorable context. This is why I don’t advocate using the inside bar as your only setup to trade the market.

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How I look to trade it, is that if I have a long bias, I would see the highs of the previous bar, this is where my buy-stop order will be. Now you have an idea of what an inside bar looks like, let me share with you on how you can actually go about entering a trade on an inside bar. Because it’s contained within the range of the previous candle high and low.

Take Profit on Inside Bar Setup

In our case the price action breaks the inside range in bullish direction. Conservative traders should consider buying the EUR/USD when the price action closes the next candle above the upper level of the range. Aggressive breakout traders would consider buying when the price reaches a few pips above the inside candle high. In either case, your stop should be located below the bottom of the range as shown on the image.

  • The Hikkake candle pattern represents the failure of the inside bar.
  • We mark the inside candle’s high and low as in the previous two examples .
  • Both of these strategies are extremely reliable and profitable when used correctly.
  • For some traders, this can amount to a few minutes a day to look for trade potential and set pending orders.

An Inside Bar must stay completely WITHIN the range of the bar immediately before it. And if the price trades lower, chances are you will see that their stops will get triggered along the way. You can trade it in a similar way, a Sell Stop below the low of the larger candle, and stop loss above the high. You can look to place a sell stop on the lows, and a stop loss above the Inside Bar high.

bar patterns

Now, I’ve covered a lot about Inside Bar trading strategies and techniques. But the next thing you know, the market does a 180-degree reversal and collapse lower — and you’re sitting in the red. Now, you’ll learn how to use the Inside Bar strategy to catch the trend.

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