Simply put, a divergence occurs when the price and a technical indicator move in opposite directions. When price breaks those key levels, it tends to move to the next key level. The Fibonacci tool is a powerful natural tool and I have used it to adjust take profit level.

I prefer to see the Inside Bar Pattern as part of a pullback in a trend—that way, there is less risk of a false breakout. This is the ideal scenario for trading a bullish inside bar setup as the market has gained a fresh set of buyers who are ready to push prices higher. Of course the opposite holds true for trading a bearish inside bar after a break of consolidation. Below is a great example of a bullish inside bar that formed on the USDCAD daily time frame. This is actually a trade setup that was called here at Daily Price Action and has worked out beautifully thus far.

In fact, an inside bar can evolve into an NR4 pattern if it is followed by two additional indecisive candles. Ultimately, the key requirement for an NR4 is that the fourth candle must have the narrowest (smallest) range among the last four candles. 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. Specifically, traders can place viable entry and exit orders based solely on the mother bar or the inside bar candle. Since inside bars are inherently smaller in relative size, they allow for entry and stop-loss points that are close to each other, particularly when compared to your target price.

When trading on a smaller intraday price chart, like the 15-minute chart, traders need to be aware of the typical market conditions. For example, the heaviest volume, and therefore most trending opportunities in forex appear during the London and New York sessions. Outside of this time period, the forex market is known to stagnate and not produce strong trends. Sometimes, when support and resistance or trendline breaks with a big candlestick then price again come back inward the key level.

Key Components of an Inside Bar Setup

1. Generally, it is more reliable in range-bound markets with clear support and resistance levels and good volume or in trending markets with strong volume.
2. And in bearish trade, your stop loss will be at the high of your mother candle.
3. In the EURUSD example above, then the inside bar pattern appeared, the RSI value was at 40 exhibiting a weak price trend.
4. A key reversal bar is a particular instance of a reversal bar that shows clearer signs of a reversal.
5. By doing so, you limit your trade potential to the point that you are likely to begin taking subpar setups.
6. This helps them set up their inside bars in line with the market’s direction.
7. If the previous candle were a lower high and low, I would place a buy-stop order above the Inside Bar.

Bar patterns form just one facet of a price-based trading approach. Traders use the InSide Bars strategy by waiting for price to make a reversal move and then form an InSide Bar. This way they are able to control their positions based on specific criteria and manage the perfect entry point by waiting for an ideal reversal in the market. In addition, there would then be volatility contraction, allowing the buying pressure to potentially continue if the price were to break out higher. NR7 is similar to NR4, with the key difference being that NR7 refers to the narrowest (smallest) range among seven consecutive candles. An NR4 pattern can evolve into an NR7 if the 7th candle has the smallest range among the last seven candles.

Without confluences, you will not be able to make a profit obviously. The inside bar is the best candlestick pattern and I have used price action with the inside bar candlestick and made the best tradeable strategies. Skilled traders often mix the inside bar with patterns like head and shoulders, double tops, and moving averages. Daily and 4-hour charts are the most reliable for trading Inside Bars, as they reduce noise and offer stronger signals. However, day traders can use lower time frames, but these may produce more false signals.

1. Recall that the inside bar represents a consolidation after a strong trend.
2. This approach enables traders to capture a potentially profitable position at the beginning of the move without constantly monitoring the market.
3. The risk here is that the trader might enter the position after a significant part of the move has already occurred.
4. Based on this principle, we can choose our  strategies to work in the framework of a current trend, at its reversal, or at breakout of one of the borders of a trading range.
5. Inside bar is a graphic pattern whose body is located inside the previous bar.

Chart Patterns

A sudden shift in the Delta indicator’s color (5) shows that the buyers’ efforts were unsuccessful, we can see signs of seller aggression. This led to market hesitation, causing the price to stop and eventually start to gradually decline. The Inside Bar indicator highlights the boundaries of wide candles within which subsequent candles fall, identifying them as inside bars. Bright green clusters (1) show bullish activity as the price moves up towards the 53,200 resistance level. You can also enter the market on the breakout of the internal bar, but then the probability of a false breakout increases. The best place to enter the market by the inside bar is to enter on the break of the mother candle in the direction of the trend.

The Trend is Your (Best) Friend When Trading Inside Patterns

However, it isn’t a setup that occurs often, at least not in a favorable context. This inside bar trading strategy is why I don’t advocate using the inside bar as your only setup to trade the market. By doing so, you limit your trade potential to the point that you are likely to begin taking subpar setups. It is, therefore, important to treat inside bars as another tool inside your trading toolbox rather than the toolbox itself. The only thing that matters is whether the mother bar is bullish or bearish. The formation of the mother bar, in combination with the trend, is what tells you which way to trade an inside bar setup.

When using the inside bar trading strategy, it’s crucial to set stop-loss orders and control how much you trade. Experts suggest using a risk-reward ratio that fits your trading goals. The meaning of an inside candle that is bullish refers to an inside bar, after which the price moves upwards. When this pattern forms during an uptrend, it suggests a temporary pause or consolidation in price before the uptrend potentially resumes. An Inside Bar pattern is a type of candlestick formation where the current bar is entirely within the previous bar’s range, signaling a pause in market movement and a potential breakout.

For most traders, the daily chart is preferred, while others might opt for shorter time frames (for scalpers or day traders) or longer time frames (for position traders). Specifically, we are using the 20-period simple moving average (SMA) to act as dynamic resistance and a trailing stop, supporting the static structural pivot points. Unlike other candlestick patterns, the bullish inside bar is not defined by the color of its first or second candle. In fact, the “bullish” nature of an inside bar has nothing to do with the candles’ colors and everything to do with the pattern’s position on the chart.

Inside bar is a graphic pattern whose body is located inside the previous bar. Investors haven’t been sure whether or not the previous price movement will continue and they’ve taken a pause. A breakout of one of the extremums of an inside bar dispels doubts and directs a currency pair in this or that direction. A stop-loss is typically placed just beyond the opposite boundary of the inside bar. Stop-loss orders are typically placed just outside the inside bar’s range — below the low for bullish breakouts and above the high for bearish breakouts.