Inside Bar Pattern: What Is and How to Trade It on Footprint Charts

According to the second definition, both the open and close of the Inside Bar are within the range of the previous bar’s open and close. The overall market situation and previous price movements are crucial. An inside bar formed during uncertainty or a flat market might not give a clear signal for future price direction. This written/visual material is comprised of personal opinions and ideas and may not reflect those of the Company.

It’s best to use low leverage until you gain experience with this strategy. A common question is understanding the differences between Inside Bar and Engulfing Bar patterns, as both involve two candles. Bullish Inside Bars are most effective when they appear after a retracement or consolidation within a strong uptrend. As you know, I’m a huge advocate of trading from the higher time frames as they tend to cancel out most of the noise from scheduled and unscheduled news events.

Key Components of an Inside Bar Setup

The Inside Bar pattern provides the most reliable signals when traded on a medium-term chart like a daily chart. This is recommended because, on a medium-term chart, Inside Bars have a larger sample size and occur only at the actual levels where the market can actually reverse. Additionally, the Inside Bar pattern provides even more accurate signals when clubbed with a technical indicator like RSI. Find the existing trend using the technical indicators or price action analysis. Locate a candlestick that is completely engulfed by the preceding candle’s high and low. If the preceding bar is a red candlestick, the Inside Bar will be a green candlestick, and if the preceding bar is a green candlestick., the Inside Bar will be a red candlestick.

This pattern signifies a consolidation phase where the market takes a “pause,” often leading to a breakout once the price breaks above or how to trade inside bar below the Inside Bar. The inside bar setup is capable of producing consistent profits, but only to the traders who mind the five characteristics discussed above. In this lesson, we’re going to discuss the five characteristics of a profitable inside bar setup. But before we do that, let’s first take a look at how an inside bar forms and what the pattern represents. Of the price action strategies we use here at Daily Price Action, the inside bar is the least common. Trends can be the most profitable market condition to make money if a trader can find a reliable entry mechanism—that is where an Inside Bar Pattern can help.

Conversely, if a bullish Outside Bar forms during a downtrend, it might indicate a possible bullish reversal. Inside and Outside Bars are two prevalent candlestick patterns in technical trading. The ‘Inside Bar’ is characterized by a bar or candle that is entirely ‘inside’ the range of the preceding one, whereas the ‘Outside Bar’ completely ‘overshadows’ or ‘engulfs’ the previous bar. Use footprint charts and other tools to professionally analyze buying and selling dynamics.

1. The above example illustrated one such example, where a minor pullback into a sharp strong bearish trend yields an inside bar.
2. In other words, relying solely on a mechanical inside-bar strategy is unlikely to be profitable.
3. The average net profit per trade for both gold and silver is more than $150.
4. We will discuss this further and provide an example in the following sections.
5. This is mainly down to what the inside bars represent in the market.

Our results are not meant to be used in isolation as a complete trading system. However, this is a good start to understand more about inside bars that occur in day trading time frames. The double inside bar pattern is a variation of the traditional inside bar. The double inside bar set up is a three candle formation of two inside bars.

In forex, the inside bar strategy helps spot trends and find the best times to buy or sell. The forex market’s high liquidity and volatility make this strategy work well, letting traders make the most of big price changes. For those who trade more advanced, mixing the inside bar strategy with other patterns can make trading more exciting. Using smart trading strategies and tactics can greatly improve trading results.

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When you have an abundance of buyers and sellers, like in the forex market, the signals from candlestick patterns can be strong. The moving average is one of the most straightforward tools for determining the direction of the trend. If the inside bar setup takes place above the moving average, then we’ll anticipate a bullish breakout as the market has been in a bullish trend. As shown, the asset is moving and bouncing back within our identified price range or boundaries. In this scenario, we recommend utilizing the inside bar pattern only when it occurs near these key levels. On the daily chart of crude oil (CL) in Figure 2, a setup formed on March 29, 2010, and an inside bar on March 30.

The Five Characteristics of a Valid Inside Bar Setup

Consequently, the denser the consolidation, the more volatile its subsequent breakout will be. As you can see, previous support and resistance levels play an important role when determining whether an inside bar is worth trading. So, what this means that relative size of the inside bar to the mother bar is important, but support and resistance levels are equally important. When we talk about low volume trading being printed on the charts in the form of inside bars, we are actually interested in the order flow/price action aspects of it. But in intra-day markets traders’ interests can be determined by a host of other factors too that may not tie into the technical aspects of trading. Instead, we have a strong bearish candlestick present itself first which indicates selling coming into the market.

1. 1) The pin bar + inside bar combo, consists of a pin bar that consumes a small inside bar toward the nose of the pin (the pin bar’s real body).
2. An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar.
3. Building on the inside bar pattern, we can explore advanced trading strategies.
4. The inside bar pattern stands as a cornerstone in technical analysis, offering traders profound insights into potential market movements.
5. The drawdowns of initial capital of this system when trading gold and silver were only 10%.

This means more traders were actively involved in its formation, which as a result equals higher capital flows. Notice how the second candle in the image above is completely engulfed, or contained, by the previous candle. In this case, the bearish candle (mother bar) represents a broader downtrend, while the bullish candle (inside bar) represents consolidation after the large decline. Margin trading involves a high level of risk and is not suitable for everyone. Margin Forex and CFDs are highly leveraged products, which means both gains and losses are magnified.