on AUDUSD we have a perfect example of pattern formation on a 4h chart .
An is a series of bars or sometimes just one bar that is contained within the range of the preceding bar (mother bar).
The first rule that we should take into account is that inside bars should close strictly within the range of the mother bar.
The second rule is that we trade this pattern only after or breakout of a mother bar trading range.
The logic behind the is simple. It indicates a time of indecision and market consolidation. Inside bars typically occur as a market consolidates after making a large directional move ( on AUDUSD ) and at key decision points like major support or resistance levels.
The side of the breakout of the range most of the time indicates the market future direction.
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