Profitable Inside Bar!!

 

Profitable Inside Bar!!

 

An inside bar forms being covered/shadowed by the body of a large candle called a mother bar. It’s a pattern that forms after a large move in the market representing a period of consolidation.

 

Trading this pattern can be so profitable because a trader is essentially buying or selling a breakout, or continuation of the preceding trend.

 

Picture below shows the characteristics of an inside bar.

In the image above, the second candle, 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.

 

Nugget

 

• Inside bars work best on the daily chart time frame because on lower time frames many inside bars are formed and many of them lead to false breaks.

• Inside bars can have multiple inside bars within the mother bar (on higher time frame), sometimes you’ll see 2, 3 or even 4 inside bars within the same mother bar. This simply shows a longer period of consolidation, which often leads to a stronger breakout.

• Sometimes, ‘coiling’ may happen inside bars, these are inside bars with 2 or more inside bars within the same mother bar, each inside bar is smaller than the previous and within the high to low range of the previous bar.

• Inside bars sometimes form following pin bar patterns and they also, like other trading strategies, may give false pattern (inside bar false-break pattern)

 

Inside bar patterns

Courtesy of https://priceaction.com/price-action-university/strategies/inside-bar/

 

Consider the following when you analyze and trade using the inside bar strategy

 

• Trading on higher time Frame

 

Any time frame less than the daily should be avoided because the lower time frames are influenced by “noise” or subjected to extreme market volatility and therefore produce false signals.

 

An inside bar that forms on the higher time frame has more “weight” simply because the pattern took more time to form. This means more traders were actively involved in its formation, which as a result equals higher capital flow.

 

Trading from the higher time frames tend to cancel out most of the noise from news events.

• The Trend is Your 'Best Friend' When Trading Inside Patterns

The trend is your friend, just as common as the saying goes. The saying has never lost its significance in the financial markets, especially when it comes to trading inside bars.

 

As the matter of fact, trading with the trend is the best way to trade an inside bar setup(Just check the picture below).Because of high market volatility, there are two variations of inside bar patterns that can be formed by the market.

 

The first instance is what you want to consider, while the second is what you should avoid. The best way to trade inside bar is following the trend

Courtesy of https://priceaction.com/price-action-university/strategies/inside-bar/

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 shown in the charts below.

 

Looking at the picture (below), 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.

In this case, we were trading an inside bar reversal signal from a key level of resistance, the inside bar sell signal in below actually had two bars within the same mother bar.

Courtesy of https://priceaction.com/price-action-university/strategies/inside-bar/

Courtesy of https://priceaction.com/price-action-university/strategies/inside-bar/

What Matters!!!

When trading inside bar, it doesn’t matter either its bullish or bearish market. In other words, if a market is in an uptrend and an inside bar forms inside of a large bullish candle, it doesn’t matter if that inside bar is bullish or bearish. The same holds true when trading a bearish pattern.

The only thing that matters is whether the mother bar is bullish or bearish. The formation of the mother bar, in combination with the trend, is what tells you which way to trade an inside bar setup.