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And in bearish trade, your stop loss will be at the high of your mother candle. If the mother candle is unusually big, however, you may place your stop loss at the 50% level of the complete candle range. Even though the pattern is known as having a structure with one large bullish or bearish first candle and a second smaller candle, it could have many other chart formations.

You should never invest money that you cannot afford to lose. Although it caused a continuation of the trend, the next example provides more confidence in the setup. Let’s look at an example to illustrate the importance of strong confluence. The first is a well-defined inside bar on the daily chart of GBP/USD.

The Fakeout, also known as a “Fakey”, is a powerful reversal signal. It occurs when the price first makes a move in one direction from an inside bar, only to quickly reverse and move in the opposite direction, trapping traders who entered the initial move. To be considered a promising trading setup, a valid setup should meet several conditions related to its structure, the market context, and trading volume. An inside bar itself is a neutral pattern representing indecision. It depends entirely on the direction of the subsequent breakout from the Mother Bar’s range.

Inside Bar Pattern vs. Narrow Range 4 (NR Pattern

An inside bar is a powerful price action pattern that often gets overlooked by day traders focused on more complex setups. But understanding this simple pattern can give you a significant edge in anticipating intraday price moves and potential breakouts. Inside bars work best when everything lines up for a good setup. Make sure you identify a strong trend with clear momentum and potential resistance or support levels. It’s also a good idea to pair them with other tools such as trendlines and the Relative Strength Index (RSI).

Whether you trade it in its traditional breakout capacity or as part of a contrarian fakeout strategy, the inside bar remains a favourite of the modern trader’s arsenal. We should also speak about the ‘outside bar,’ which is the opposite of the inside bar. Like the inside bar, this engulfing pattern is used for trading breakouts in mostly trending markets. The outside bar also has the same formation – a mother bar being larger than a smaller one.

We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade. No pattern is the holy grail of trading, and the inside bar pattern, like many other classical chart patterns, has strengths and weaknesses. The inside bar pattern also gives great breakout trading opportunities, and it’s very simple to trade. You can apply plenty of trading strategies when trading inside bars. As mentioned, the inside bar candle pattern can appear in a downtrend or an uptrend and indicate a reversal or trend continuation.

Fakey Trading Strategy (Inside Bar False Break Out)

Still, there is no guarantee that the price will move substantially in the opposite direction – it may simply be retesting the range before following the previous trend. The three-bar inside bar strategy is a three-candle variation of the traditional inside bar (with two candlesticks) and is seen as a more reliable trend continuation pattern. If it closes the same color as the mother trend bar, then it signals an early breakout and continuation of the original trend. The three inside bar strategy was discovered by Johnan Prathap in 2011. Second, inside bars can offer well-defined and attractive risk-reward trade-offs. This is because the candle itself can form the entire trade setup.

• Keep in mind that there can be more than one candlestick (bar) that forms and is also fully engulfed by the candlestick to the left.
• An Inside Bar Fakeout happens when the price initially breaks out of the Inside Bar pattern but quickly reverses, trapping traders who entered too soon.
• Before we dig into the details of the inside bar pattern, it’s essential to have a clear understanding of what an inside bar is and how to identify it on a price chart.
• The ‘bearish’ nature of the inside bar is determined by its position on the chart.
• Learn how to build unshakeable confidence in your trading using data-backed probabilities, precise entries, and systematic risk management.
• If insider trading does occur, you must act quickly and stop it dead in its tracks—the severity of the crime is determined by the amount of money this illicit trade can be measured in.

Inside Bar Pattern vs. Spinning Top Pattern

• He has a monthly readership of 250,000+ traders and has taught over 30,000+ students since 2008.
• So long as they register the trades to the SEC, they should be in the clear.
• A strong catalyst for growth arrived with the release of Nvidia’s quarterly report, which exceeded Wall Street’s optimistic expectations.
• The inside bar is one of the most recognizable reliable patterns in use today.
• The main takeaway from the data is that you should be using one side of the previous day’s range for your profit targets.

First, traders wait for the pattern to form and the following candles to close above or below it. Second, traders use volume or momentum indicators to identify the strength of the price movements. Another option is to use chart patterns that also provide continuation or reversal signals. In the inside bar strategy, traders wait for the pattern to form and look for a breakout above the high of the formation to enter a long position or below the low to enter a short trade. A stop-loss order might be placed below the low of the pattern in a long trade and above the high of the pattern in a short trade. Profit targets can be determined based on the trader’s trading plan, technical indicators, or key support and resistance levels.

You don’t need to check any indicators or make complicated calculations, you can simply spot inside bar trading them with your eyes. Scan the chart and look for a smaller candle that’s completely enclosed within the one that came right before it. It should have a smaller range and body, with a higher low and lower high. Let’s look at some real examples to understand this candlestick pattern better.

Pin Bar and Inside Bar Combo Trading Strategy

It helps protect you from unexpected market movements and keeps potential losses under control. One effective technique that was mentioned is to set up stop-loss orders on every trade. These orders act as your first line of defense, preventing small losses from turning into devastating hits to your account. When trading inside bar patterns, you need to find the best entry and exit points to maximize your trades’ potential.

Inside Bar Pattern = Triangles

To enhance our price action analysis, we strongly suggest integrating volume to identify valid breakouts. An ideal breakout is one accompanied by significant volume, as demonstrated above, which confirms the strength of the move and helps to avoid potential ‘fakeouts’ or false breakouts. Inside bar patterns work well at those trading range extremes because the pattern suggests a pause. The pattern indicates the market has recognized the larger support and resistance level as important and paused its mini-trend within the larger price range.

A critical error is ignoring the overall market context. An inside bar that forms as a continuation signal in a strong, established trend is a much higher-probability setup than one that forms in the middle of a choppy, directionless market. Similarly, in low-liquidity markets, a pattern can simply mean a lack of market interest, not a buildup of energy, often leading to failed moves.

How Reliable is the Inside Bar Pattern?

We strongly advise traders to thoroughly test any strategy on a demo account and maintain a detailed trade journal to track performance before risking real capital. To continue developing your chart reading skills, we encourage you to explore more in-depth guides in our Forex Chart Patterns category on Piprider. In conclusion, the inside bars pattern is a powerful and versatile tool in a price action trader’s arsenal. It provides a clear signal of market indecision, often preceding a significant break. To avoid it, always wait for a strong candle to close outside the preceding candle’s range as confirmation.

Thus, Mickelson got to avoid going to jail but did have to relinquish his profits in 2012 (nearly $1 million plus interest!). In theory, a person could technically commit insider trading without knowing that the information was “insider”. This could feasibly be because of ignorance of the market. They can also use relatively innocent information to link people together and prove cause or opportunity to conspire. SEC investigators have gone on record using the timestamps of subway cards in New York City or Facebook photos in order to prove that insider trading was not only possible but probable. These days, it’s a lot easier for the SEC to spot transactions that are suspect for insider trading.

In this market environment, where the trend did not reverse but instead shifted to a sideways movement, means that market sentiment remains uncertain for this trade. Here, we see a strong uptrend leading into the inside bar pattern. Looking at the two bars, the mother bar is represented by a long-bodied, bullish candle that made a new high, followed by a small bearish candle symbolizing the inside bar. However, unlike the first two trade examples, the third candle—which serves as the confirmation signal—closed below the bodies of the two bars and below the range of the inside bar. As traders, you may have noticed that the two candles in the inside bar pattern often serve as short-term resistance levels. Therefore, breaking these price levels is crucial for the success of a potential long trade in the market.

By following this process and letting the data guide your decisions, you can day trade inside bars with confidence and a clear statistical edge. Inside bars on SPY behave differently than those on QQQ, individual stocks, or futures. Always check the specific data for your chosen day trading instrument.