How to trade inside bars.
Of the numerous price action Forex candlestick patterns that present themselves on a daily basis, inside bars are probably seen more often than any other pattern. Knowing how to trade inside bars will give you an edge in your Forex trading.
So what is an inside bar?
Its a pretty simple answer. An inside bar is a candle that forms inside another candle. If you look at the picture on the right you will see an example of a bullish inside bar. For a candle to qualify as an inside bar, it has to be inside the candle to its left, as per the picture. The red candle to the left of the green inside bar is commonly called the mother candle.
If the green candle was to the left of the mother candle it would not qualify as an inside bar. An inside bar has to be to the right of the mother candle. A mother candle that has an inside candle to its left is called an outside bar. An outside bar is a totally different candlestick pattern to an inside bar, and has a totally different meaning. You can find information here on how to trade outside bars.
So what does an inside bar signify?
An inside bar can mean one of 2 things primarily. In a trending market it can mean a reversal is likely, or it can mean a trend continuation is likely. The concept behind an inside bar is the market is showing indecision or consolidation after a big move. The red candle is a big move down and sentiment has changed from bearish to bullish. This could be a temporary change in sentiment, which would result in a trend continuation, or the start of an overall change in sentiment, which would lead to a reversal.
The candles preceding the inside bar are a good indication of whether a trend continuation or reversal is likely. Also the level at which the inside bar presents itself is also a good indication of what the likely outcome will be.
Trading guidelines for inside bars.
The general rule on how to trade inside bars would be to enter the trade at the breakout of the red mother candle. If you are trading the reversal, you would trade the breakout of the mother candle to the upside in this instance. If you were trading a trend continuation move, you would trade the breakout to the downside.
I don’t generally trade breakouts, but if i was trading this set up i would personally like to see a convincing breakout of the mother candle, and then a retest of the inside bar before i would take the trade. I like to enter my trades at the best possible price, and when you are trading breakouts you do often see a little retrace, or re test of the breakout area, before a continuation, and that is where i would like to get in, as you are getting a discount to the price paid by the breakout traders. This strategy does run the risk of missing the breakout though, as the price does not always come back for the re test.
For more information on how to trade inside bars please consider my price action Forex training course.
If you found this article to be helpful to you, please like it on Facebook, share it on Twitter, or bookmark it using the social bookmarking buttons below. Thanks. 🙂
