Inside bars and how they could help improve your trading

Price Action - Inside Bars

Hi i would like to run through one of my favorite price action patterns the inside bar which hopefully could help to improve your trading. They are very easy to trade, easy to see and can be very rewarding. They happen in every market and every time frame, although i find it is best to only trade them on the daily and 4hr tf's this is important and much more reliable.

They can be used rewardingly as a standalone trading strategy. And for trend continuation/confirmation, position increasing which i use a lot, overcome Indecisiveness, position closing and trend reversals.

I'm not going to go in to great detail as there is plenty of reading and places you could learn this pattern in greater detail than i have the time to explain.

What is an inside bar and why do they happen

An inside bar is basically a two bar/candle pattern comprised of bar A known as the mother bar which precedes bar B the inside bar which will be completely engulfed by bar A depicted in chart. So why do they happen well basically an inside bar tells us that buyers and sellers have been reluctant to push prices above or below the previous candle’s high or low. In a way, inside bars reflect indecision in the markets.

When to trade them

It is best to trade inside bars in the direction of the trend as a trend continuation pattern but they also represent potential reversals at key support and resistance zones.

Here is a chart for the gbpusd that i was working on, granted it's not the best to use as an example but i trade a lot of gu and suppose it highlights even how they can be profitable in difficult trading markets. So i was expecting another push up to my resistance area within the flag before another anticipated down move. Price had a good bounce off the rising support (reversal level) followed by a moment of indecisiveness creating a nice inside bar, Great i can now put a buy order in just above the high of the mother bar with my stop at the low, always allow a couple of pips room if using stop limit orders as to avoid premature buy ins which could reverse.


So my buy order is in lets see how it went


In this instance there was more indecisiveness followed by another inside bar. I was prematurely triggered in but stayed well within my stop. To avoid this it is best to confirm breakouts on a smaller timeframe 4hr - 2hr where we want price to close above the breakout line and hold without using stop limit orders if you have the time, i didn't. Anyway as you can see price did break up just reaching my target resistance area and i closed this trade +230 pips. As we had another inside bar i was also able to bring my stop up to minimize the risk.

So now my long had played out i wanted to get in short. price made an m pattern double top if you wish with an inverted hammer reversal top also with divergence so i got in here with a small stop at our last swing high. Yes i didn't wait for trendline breakout price action was good enough for me to enter for a small risk. Price then went down we had a good looking breakout with trend direction and an inside bar formed. I was already in the trade so i saw this as great chance to either close my short or add to it.


And again this one went great for me price broke lower so i was able to stay in the market and increased my position. Hitting my target area for 540 pips + an extra 250 pips thanks to the inside bar. As price continued you can also see there are more inside bar continuations. the following inside bar had a very large mother bar we can still trade these just the same but will need to adjust stops only using a portion of the mother bar where there is some previous support or resistance areas to the left.