Inside Bar candlestick pattern – The ultimate technique of Price Action school

Inside Bar candlestick pattern - The ultimate technique of Price Action school
Inside Bar candlestick pattern - The ultimate technique of Price Action school

It is no exaggeration to say that the Inside Bar candlestick pattern is an ultimate Price Action technique. Because those who understand and trade with it are less likely to lose. The profit they can earn depends on the ability to manage capital and the trading psychology of each person. If you are passionate about the Price Action style and want to make a profit with it, do not ignore this article! It will be the most detailed, most accurate article about Inside Bar that you have ever read.

What is the Inside Bar candlestick pattern?

Inside Bar pattern consists of 2 candles:

1. Mother Bar is a candle with a large and long body that encloses the inner candle.

2. Inside Bar is a candle or cluster of candles inside of the Mother Bar

What is the Inside Bar candlestick pattern?
What is the Inside Bar candlestick pattern?

Inside Bar is a “double-faced” pattern, which means that the Inside Bar can both signal that a trend is about to end and a new one is about to take place. Or it can show the continuation of the preceding trend.

Features of Inside Bar candlestick pattern

Inside Bar is an effective support tool for Price Action traders. However, to use it effectively requires traders to understand the following important features.

– To make sure that the pattern is Inside Bar, the mother candle must embrace the inner candle. At the same time, the Inside bar must satisfy the condition that there is a lower high and a higher low than the mother candle.

– In theory, the Inside Bar pattern will work more effectively when the state of the mother candle and the inner candle must be opposite as follows:

  • If the mother candle is bullish with green color on the candlestick chart, the inner candle must be bearish with red color.
  • Conversely, when the mother candle is a red bearish candle, the inside candle must be a green bullish candle.
Features of Inside Bar
Features of Inside Bar

However, up to now, the Inside bar candlestick pattern has many variations. So the pattern doesn’t need to include 2 candles of different colors. They can completely coincide with each other. The only condition that needs to be satisfied is that the inner candle must be inside the mother candle.

The Inside Bar pattern usually appears when the market moves sideways after a large volatile trend. In addition, the Inside Bar can also appear at important support or resistance levels.

The meaning of the Inside Bar candlestick pattern

As a powerful candlestick pattern and is trusted by the majority of investors in the Price Action style, the Inside Bar has many important meanings.

The Inside Bar gives investors signals of both continuation and reversal. In particular, the signal of the Inside Bar on trend continuation is considered to be more reliable and also simpler for new investors. And reversal signals require traders with knowledge and long trading experience.

In terms of order setup, the Inside Bar has the effect of indicating where a low-risk entry point is or a reasonable exit.

The Inside Bar shows whether the market is in an accumulation or indecision phase. That is, the buyers start to cool down and the sellers also pause after a period of a strong downtrend, making the trading volume decrease. The proof is that the inner candle has a higher low but a lower high.

Inside Bar variations

As mentioned before, the Inside bar has many different variations. Therefore, within this article, we will provide you with the 4 most common and standard inside bar patterns.

Multiple Inside Bar

The Multiple Inside Bar is an extended variation of the basic Inside Bar pattern. It can include 3 candles, 4 candles, or even more. The common form of this pattern is a 3-candle form as illustrated below. There are 2 inner candles (Inside Bar) and 1 mother candle (Mother bar).

Double Inside Bar candlestick pattern
Double Inside Bar candlestick pattern

Multiple Inside Bar does not matter about the color of the candles. The factor that investors need to pay attention to is that the inside bar candles must be smaller in size, completely inside the Mother bar. If the inner candles are larger than the mother candle, it is not an Inside Bar candlestick pattern.

An expanding Inside Bar pattern shows that the accumulation state of the market is prolonged. Then there is usually a strong move that pushes the price further. However, the next direction is uncertain.

Coiling Inside Bar

Coiling Inside Bar is formed when 2 or more inside bar candles cover each other in turn. That is, the following candles will be completely covered by the previous candles from the top to the bottom of the candle.

Coiling Inside Bar
Coiling Inside Bar

The coiling inside bar is considered a stronger candlestick pattern than the basic one. Because it shows the accumulation of the market very beautifully and regularly according to the rules. Then it also signals that the accumulation is being compressed and there is about to be a big explosion that will push the price far away (may increase or decrease sharply).

Fakey Inside Bar Pattern – Inside Bar False Break Out

The Fakey Inside Bar is the most complete and meaningful pattern. It shows a stronger reversal signal than the basic one.

Inside Bar False Break Out pattern
Inside Bar False Break Out pattern

Fakey Inside Bar is a combination of Inside Bar accompanied by a false breakout. Specifically, when the price breaks out of the Inside Bar pattern in one direction but then quickly reverses in the opposite direction. At this point, many traders who enter the initial trend will be trapped by the shark.

But in reality, that breakout is just a false breakout. After the Fakey candle is formed, the market usually moves in the direction of the previous trend.

Inside Bar – Pin bar combination

Inside Bar – Pin Bar occurs when a Pin Bar is completely surrounded by a mother bar. The pattern can be called an Inside Bar or a Pin Bar.

Inside Bar – Pin bar combination
Inside Bar – Pin bar combination

Compared to the basic one, the Inside Bar – Pin bar combination is considered a price action pattern that predicts a strong reversal. It shows that the market is in an accumulation state and is about to break out in the direction of Pin Bar.

How to trade with Inside Bar

The trading method with Inside Bar is quite simple and easy. In essence, it can be divided into two main ways of trading, trend continuation, and trend reversal.

Usually, the Inside Bar acts as a continuation pattern when the market is in a strong trend. However, the inside bar also gives a reversal signal when it is formed at the important support or resistance zone. To better understand the trading method, let’s go into each case in detail.

Inside bar is a continuation pattern

In this case, the Inside Bar can be used for trend-following orders when the market is in a certain bullish or bearish trend.

When the market is in a downtrend.

At this time, traders should enter bearish orders at the low of the Inside Bar patterns to make a big profit (lowest price of the mother candle).

Open a bearish order with an Inside Bar candlestick pattern
Open a bearish order with an Inside Bar candlestick pattern

Place a stop loss at the top of the mother bar and take profit at a minimum R:R ratio of 1:2 (ie the profit of the order must be at least twice the loss)

When the market is in an uptrend.

This is a buy signal for traders. At this time, you can enter a bullish order at the highest price of the mother bar or when there is confirmation of the bullish candle after the inner candle closes, creating a higher high than the mother bar.

Open a bullish order with an Inside Bar candlestick pattern
Open a bullish order with an Inside Bar candlestick pattern

Place a stop loss at the bottom of the mother candle and take profit at the minimum R:R ratio of 1:2.

Note that if the market is in a strong uptrend and there are more and more Inside Bar patterns, the probability of successful trading is very high.

Inside Bar is a reversal pattern

When trading with a reversal Inside Bar, traders should note that it must be formed in an important price area, which has been retested many times before.

If the inside bar appears at an important support zone, It signals that the market will reverse to increase sharply after that.

On the contrary, if it appears in the resistance zone, the inside bar is a signal that the market will turn and fall sharply.

Bearish Inside Bar pattern at the resistance zone
Bearish Inside Bar pattern at the resistance zone

In both cases, the trader will enter the order when the price breaks the pattern and retest. If the price reverses down, the stop loss is placed at the top of the mother candle. If the reversal is up, it is placed at the bottom of the mother candle. Take profit according to the ratio R:R is 1:2 or 1:3 as you like.

Some notes when trading

After understanding the meaning and method of trading with Inside Bar, traders should note a few important issues.

If you are a new trader with Inside Bar, you should choose a daily time frame, from H4 or higher to make trading easier. Because the Inside Bar works best on the D1 time. In smaller time frames, be careful because false signals usually appear.

Trading with the reversal Inside Bar at an important price area requires traders with extensive experience and time to practice proficiently.

When the market forms a multiple Inside Bar pattern, it signals that the market is in a prolonged accumulation phase to prepare for a strong breakout later.

A big advantage of the Inside Bar is that it offers a stop loss quite close to the entry point. However, this becomes a disadvantage because stop loss can be easily swept.

Always beware of false breakouts – Fakey. Because most of the new investors are trapped when faced with this pattern.

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Inside Bar candlestick pattern – The ultimate technique of Price Action school
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