I applied the Price Action Pattern Indicator to mark out the three-bar inside bar patterns, with the trend filter disabled. The arrows point out two bearish patterns and one bullish pattern. Inside bars are truly one of the most interesting and powerful price action signals so I hope you enjoyed learning about them and that you’ll continue to do so. There are essentially two main ways we can look to trade inside bars, as with most other patterns; as a continuation signal or as a reversal pattern. It is important that the breakout thru the opposite side occur within 2-3 bars of the original breakout. However, if this happens you should look to see if there is an Inside bar failure pattern emerging.

A decrease in volume during the Inside Bar period suggests a decrease in market participation and further confirms the indecision. This article discusses one of the most sought after technical analysis… What this Indicator Does

This indicator is a very simple tool created specifically for experienced Straters.

FXSSI.ProfitRatio

It is common to add more rules to the pattern to reduce the number of losing trades. However, don’t get obsessed with it, or you might fall into the trap of the Holy Grail search. The chart below shows the daily prices of McDonald’s Corp (MCD on NYSE). This example shows a weekly chart of the Straits inside bar candlestick Times Index, the barometer of the Singapore Stock Exchange. This pattern requires three price bars, and the criteria for each of them are listed below. The important criteria of this pattern are the opening and closing prices of the first candle known as the Preceding candle or Mother Candle.

In a strong trending market (when the price is above 20MA), the pullback is shallow. Since price volatility has subsided and the price stayed completely within the range of the previous bar, either buying pressure has increased or selling pressure has decreased. An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar.

Example #4: Importance of The Market Context

This setup increases the probability of reversal in trend after inside bar breakout. It clearly shows us the indecision because the market is moving inward. The size of every next wave will be shorter than the previous wave. There are several ways to trade inside bars that stem directly from the trader’s individual risk appetite and possibly the overall strength of the setup itself. The Inside Bar consists of a smaller candlestick, known as the “Inside” or a “Child” candle, which is completely engulfed by the range of the preceding candlestick, known as the “Mother” candle.

In an uptrend, the consolidation is triggered when longs decide to begin taking profits (selling). 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.

Price Action Strategies

An inside bar pattern is a multi-bar pattern that consists of a “mother bar” which is the first bar in the pattern, followed by the inside bar. An inside bar pattern can sometimes have multiple inside bars within the same mother bar. When we short the EUR/USD, we would want to place a stop loss order above the upper level of the inside range. As you see in this example, the EUR/USD decreases afterwards making this Hikkake trade a profitable deal. We will discuss the structure of the inside bar setup and the psychology behind it.

An inside bar is much easier to take in a trending market because the odds are already in your favor for trading with the trend. The inside bar will many times lead to a breakout or continuation in-line with the existing trend direction. They can provide a good structure to try to pyramid your trade into a huge win. Hence, an inside bar is not just a pause in the market, it’s a pause with an extra piece of confluence behind it, and as a result, a more powerful price action signal. What is most important is that the inside bar trading setup must adhere to pre-defined rules that the trader sets up per his own trading plan.

Trading Inside Bars

This is part of a new series we are calling “Strategy Myth-Busting” where we take open public manual trading strategies and automate them. The goal is to not only validate the authenticity of the claims but to provide an automated version for traders who wish to trade autonomously. Our 10th one we are automating is the ” 75% Win Rate High Profit Inside Bar… This chart shows the 4-hour candlesticks of the EURUSD spot market.

The critical point here is the third candlestick that rises above the second candle and indicates that the price is likely to increase. To confirm that, we used a basic moving average indicator, and, as seen in the chart, the crossover occurs precisely at the formation of the mother candle (the first candle). 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. Inside bar trading is also relatively easy to use when analyzing trade opportunities.

Inside Bar with a small range

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. You can see our 3 bar pattern set up and the entry price is at the break of the $82.64 high. Keep in mind that price that breaks out of a range will usually go back to test the breakout level. However, you can trade the inside bar on 30M or any timeframe above 30M. Place pending sell (sell stop order) order below the low of the inside bar.

• An inside bar that forms on the higher time frame has more “weight” simply because the pattern took more time to form.
• I applied the Price Action Pattern Indicator to mark out the three-bar inside bar patterns, with the trend filter disabled.
• When the price exits the inside bar range, we expect that the price action will continue to move in the direction of the inside bar breakout.

In this next section we will take a closer look at the Hikkake pattern, which is an inside bar fakeout. When you see this pattern, you should position yourself in the market to trade in the opposite direction to the one which you had previously placed. 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.

Once we know how to spot three-bar inside bar patterns, its trading rules are straightforward and focus on the closing prices of the bars. The Three-Bar Inside Bar Pattern is an impressive trade setup by Johnan Prathap. It combines three trading concepts in one to create a winning pattern.