InSide Bar Strategy
They place trades in the direction of the trend once the price breaks above the high or below the low of the inside bar. Stop-loss orders are typically placed above the high or below the low of the inside bar to protect against potential losses. 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.
Stay ahead of the market!
It’s wise to risk only a small part of your total capital on one trade, usually 1-3%. This helps protect against big losses if the market goes against your trade. This strategy uses inside bars to spot when a trend might keep going. You may think you are risking fewer pips by doing that, but you are losing more money. What’s the point of trying to risk fewer pips if you repeatedly get stopped out at the very beginning in a trade that should have been a winner? They can serve as further confirmation that the price wants to reverse.
Not all Inside Bars are the same, and understanding their variations can help traders make better decisions. Unlike the Inside Bar, where the second candle is within the range of the first, an Outside Bar occurs when the second candle has a higher high and a lower low than the previous bar. Bullish Inside Bars are most effective when they appear after a retracement or consolidation within a strong uptrend. Traders see this as a bullish signal, positioning it as an entry point to capture further upward movement.
- It suggests a potential reversal or continuation of the current trend.
- An inside bar is an effective candlestick formation that can indicate a favorable entry point.
- The main benefit is that you are guaranteed to be in the position – the downside is that you may be entering into a false break.
- For example, an inside bar forming after a strong directional move or near established support or resistance levels may carry different implications for future price action.
Inside bar order entry and exit strategies in a ranging market
First, wait for the trend to stop and for a period of consolidation to form. Once the range has clear boundaries with support and resistance levels, look for a breakout as price breaks through the established range. After the breakout occurs, do not place an entry order immediately — wait for an inside bar to appear.
- To use inside bars well, traders need to know what they look like and how to spot them correctly.
- Our article will discuss the Inside Bar trading strategy and how to identify ideal price levels with the same.
- The green arrow shows the successful breakout of the inside day formation.
- An inside bar is a two-candlestick pattern where the second candle is completely engulfed by the first candle.
Trading inside bars on their own
In fact, trading with the trend is the only way to trade an inside bar setup. Note that this pair was in a strong uptrend leading up to both setups. This is the kind of momentum you want to look for when trading this strategy.
Ideally, we want to see the inside bar form within the upper or lower half of the mother bar. Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings. I have been wondering how best to trade inside bars, and you have explained it so well. Thank you for taking your precious time to share your valuable insights with us. And with a smaller stop loss, you can put on larger position size and still keep your risk constant. If you want to capture a swing, then you can exit your trades before opposing pressure steps in.
Make sure that your method of identifying a trend really does give you an edge. If you trade every single Inside Bar signal, you WILL blow out your account. inside bar candlestick Generally, the stop loss would go on the other side of the mother bar. So if you took a short signal, the stop loss would go above the mother bar. Price action becomes “compressed” into a tighter range and at some point, it has to break out and resume normal volatility. You don’t need to know why Inside Bars happen, you just have to understand what the price action is telling you.