This signals even stronger consolidation, meaning that when a breakout finally happens, it could be more powerful. Not all Inside Bars are the same, and understanding their variations can help traders make better decisions. If the price breaks below the low of the Inside Bar, it signals that sellers are regaining control, making it likely for the downtrend to continue. A Bearish Inside Bar appears within a downtrend, indicating a momentary consolidation or pause before a potential continuation of the downward movement. When the price breaks above the high of the Inside Bar, it suggests that buyers are regaining control, often resulting in a continuation of the upward trend. A trend continuation is likely if the breakout aligns with the current trend, while a reversal may occur if the breakout moves against it.
Unlike other candlestick patterns, the bullish inside bar is not defined by the color of its first or second candle. In fact, the “bullish” nature of an inside bar has nothing to do with the candles’ colors and everything to do with the pattern’s position on the chart. An inside bar is considered bullish when it serves as either a continuation pattern during an uptrend or a reversal pattern during a downtrend.
In this scenario, we recommend utilizing the inside bar pattern only when it occurs near these key levels. First, in a trending market environment, one strategy that complements an inside bar trading strategy well is the use of one of the most well-known technical indicators—the moving average (MA). Specifically, we are using the 20-period simple moving average (SMA) to act as dynamic resistance and a trailing stop, supporting the static structural pivot points. Let’s examine our first example to illustrate that an inside bar can be considered a bullish variant based solely on its position on the chart, rather than its color.
How to Identify the Inside Bar Pattern?
Part of our incredible mentorship is helping traders spot patterns like the inside bar. Still, we go beyond by providing you with other vital components to ultimately be successful. It’s safe to conclude at least a 50% hit rate when trading this (and just about most) pattern.
Compared to inside bars, pin bars are single-candlestick formations that indicate a rejection of further price movement in either direction, similar to dragonfly and gravestone dojis. The significance of pin bars comes from their structure rather than their color. Third, a genuine dilemma exists in deciding which reference to use in the inside bar setup—the mother bar or the inside bar candle.
- We see a bearish inside bar pattern near the trend line.
- This was followed by a much smaller bearish candle that resembles a doji, given how close the open and close prices are.
- Proper risk management is the core of any strategy, and it begins with using the Mother Bar’s range as the decision point.
Trading Inside Bar with Moving Averages
For instance, a stop-loss might sit below the mother bar’s low when opening a buy position, or above its high when opening a sell position. This approach helps define risk before entering a trade, but it doesn’t remove it inside bar trading entirely. Identifying chart patterns doesn’t guarantee success – market conditions can change, and patterns may sometimes be misread or fail to play out as expected.
Trading Inside Bar Breakouts with Footprint Charts
There is hesitation among buyers and potential control by sellers, leading to a downward breakout. Here, we explore how to trade the pattern and other crucial information, such as various strategies to maximize its effectiveness and hit rate. Let’s look at this pattern in three different scenarios with brief explanations. Nial Fuller is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught over 30,000+ students since 2008. The Inside Bar Pattern (Break Out or Reversal Pattern) An “inside bar” pattern is a two-bar
The Engulfing Candle: Definition and Trading Example
To see all alternatives, download our Candlesticks Patterns PDF for free. Still, you will want to place some distance above or below the inside bar instead of a random spot. In essence, the high and low of the third candle is contained within the high and low range of the second candle while the second candle’s range is contained within the first candle’s range.
Identifying the Inside Bar on Trading Charts
- It indicates that the current candle’s trading range is narrower than that of the previous candlestick.
- This pattern indicates a period of consolidation, where the market is being indecisive.
- It visually represents a pause or indecision in the market, often indicating that energy is building for a potential breakout.
- Entry points for a short position at the candle near the red lines (7) or on the break of the inside bar’s low (4) would be at roughly the same level.
- Specifically, traders can place viable entry and exit orders based solely on the mother bar or the inside bar candle.
However, they are more prone to false moves on lower periods, so stricter confirmation rules are needed. They are most reliable on higher time frames like the daily and 4-hour charts. These time frames filter out market noise, making the indecision signal more significant. This occurs when two inside bars form consecutively within the same Mother Bar.
SEC Investigators Are More Skilled than Ever at Flagging Trades 🕵️
Instead of sticking to a linear two-bar strategy, it might be more effective to focus on the overall market context and use footprint charts. This approach allows for a deeper understanding of buyer and seller dynamics during inside bar breakouts. Waiting for the breakout candle to close gives a trader more certainty that the price movement beyond the inside bar is strong and likely to continue. The risk here is that the trader might enter the position after a significant part of the move has already occurred.
Inside Bar Trading Strategy: Entry and Exit Tips
This allows insiders to buy or sell shares, although those trades have to be registered with the SEC for fairness purposes. This is why you see headlines about CEOs buying back company shares or employees buying stock in their own companies. A stockbroker who makes the trade isn’t necessarily an insider, but can still benefit from insider information. No. It is a natural evolution of price and does not discount the impact a break of the mother bar can have. That type of price action adds to the probability of an upside break and the probability of a break that will last. To calculate the position size (the number of shares to buy), you would determine how many shares you can purchase without exceeding your $500 risk threshold.
Buyers have been in control, steadily pushing the price higher. When the next candle forms and stays completely within the range of a previous, larger candle, you have found the Inside Bar. This smaller candle is showing you that the market is pausing, but not reversing. If the candle that comes after it breaks above the high of that Inside Bar, it’s a strong signal that buyers are still in charge and the uptrend is likely to continue.
Once you see the third candle breaking out higher or lower, that could be a great opportunity to jump in and follow the trend, using a stop-loss to manage risk. If you’re going long, place your entry slightly above the Inside Bar’s high, and if you’re going short, enter just below its low. Finding Inside Bars on a chart is pretty straightforward once you know what to look for.
Insider trading can easily be considered a conflict of interest if the actions of the trader or insider directly go against the health of the company they allegedly serve. For instance, a CEO could theoretically purposefully change the direction of his company to better improve the stock market prices for his company’s securities. He could then sell the stocks he owned in that company, all while making cuts across other sectors of his company’s wellbeing, like employee benefits or product quality. If you’re curious about the accuracy of a specific trading strategy, it’s important to consider a few factors. This strategy tends to be reliable when you take into account higher time frames and align it with the overall market trend.