Its relative position can be at the top, the middle or the bottom of the prior 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. Inside bars show a period of consolidation in a market.
However, they can also form at market turning points and act as reversal signals from key support or resistance levels. The classic entry for an inside bar signal is to place a buy stop or sell stop at the high or low of the mother bar, and then when price breakouts above or below the mother bar, your entry order is filled.
In the example below, we can see what it looks like to trade an inside bar pattern in-line with a trending market. Note, often in strong trends like the one in the example below, you will see multiple inside bar patterns forming, providing you with multiple high-probability entries into the trend:. In the example below, we are looking at trading an inside bar pattern against the dominant daily chart trend.
In this case, price had come back down to test a key support level , formed a pin bar reversal at that support, followed by an inside bar reversal. Note the strong push higher that unfolded following this inside bar setup. In this case, we were trading an inside bar reversal signal from a key level of resistance. Also, note that the inside bar sell signal in the example below actually had two bars within the same mother bar, this is perfectly fine and is something you will see sometimes on the charts.
Trading inside bars from key levels of support or resistance can be very lucrative as they often lead to large moves in the opposite direction, as we can see in the chart below….
For more information on trading inside bars and other price action patterns, click here. Trading Inside Bars in a Trending Market In the example below, we can see what it looks like to trade an inside bar pattern in-line with a trending market. Note, often in strong trends like the one in the example below, you will see multiple inside bar patterns forming, providing you with multiple high-probability entries into the trend: Trading Inside Bars against the Trend, From Key Chart Levels In the example below, we are looking at trading an inside bar pattern against the dominant daily chart trend.
Inside bars at key levels as reversal plays are a bit trickier and take more time and experience to become proficient at. Inside bars work best on the daily chart time frame, primarily because on lower time frames there are just too many inside bars and many of them are meaningless and lead to false breaks.
Practice identifying inside bars on your charts before you try trading them live. Your first inside bar trade should be on the daily chart and in a trending market. Inside bars sometimes form following pin bar patterns and they are also part of the fakey pattern inside bar false-break pattern , so they are an important price action pattern to understand.
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. Support and resistance levels are horizontal price levels that typically connect price bar highs to other price bar highs or lowMore...