Inside Bar is a candlestick pattern that is not too unfamiliar to traders, this candlestick pattern appears very often on price charts. So we need to learn to recognize and properly apply this model to be effective.

The picture below shows the Inside Bar candlestick pattern:


Depending on where the inside bar appears, the inside bar can become a trend continuation or reversal pattern. If we know how to use it, it will promote great value.

The picture below shows variations of the inside bar candles:


Variations of the Inside Bar although their shapes are different, the forming characteristics are always the same with the second candle located inside the range of the previous candle. And the price action implications of these variations are the same.


THE INSIDE BAR IS A CONTINUATION CANDLESTICK PATTERN

The required condition is:
  • The market trends to be good
  • Did not form near critical support resistance
When the two conditions exist, we can trade inside bar like the trend continuation pattern, like the USDCAD pair D1 example below:


Wait for the candlestick pattern to form, traders, can buy on the next bullish candlestick.

Another example, DAX framework D1:


As you can see, there are 3 inside bar candlestick patterns forming a good trending market.


THE INSIDE BAR ACTS AS A REVERSAL PATTERN

It can be said that the inside bar candlestick pattern is a difficult one because many traders misunderstand its meaning. But if you know the principles for defining this model, you will define this model more accurately.

We have already talked about the rule for the inside bar candlestick pattern to continue. Now we will see the rule for the reversed inside bar candlestick pattern.

A necessary condition is that the inside bar candle formed at a major support or resistance level.

See the chart below:


As shown above, the inside bar candle formed at an important resistance on the D1 frame of EURUSD. The price quickly reversed after forming the inside bar.

Now let's look at another example:

The inside bar was formed at important support and then the price reversed sharply.

Let's recap a little bit about how inside candlestick trading continues and reverses:

For the reversing inside bar: When the price reaches a major support or resistance level as the two illustrations below, and the inside bar candlestick pattern is formed at these thresholds, here we will confirm the inside bar is a trading reversal signal.


For the inside bar: When the market has a good trend and the price forms an inside bar candlestick pattern during the moving trend, the inside bar candlestick pattern has a signal that the trading is trend continuation. As shown below:

Inside bar continuing uptrend:


The inside bar continues downward trend:


Once you know whether the inside bar candlestick signals should be used in a trend or reversal, you will understand the value they deliver.


WHAT TIMEFRAME CAN I TRADE INSIDE BAR CANDLES?

According to the author, H4 or higher frames will give the inside bar more reliable signals than low time frames.


SET YOUR STOP LOSS ACCORDING TO THE INSIDE BAR CANDLESTICK PATTERN

The chart below shows the AUDUSD chart. The inside bar candle formed during the slowdown period in the trending market, so the inside bar candle is considered a signal of trend continuation.



Below is an enlarged candlestick inside bar in the image above:



Many traders trend to place their stop loss below the previous low, but in my experience, often when the inside bar candlestick forms, there may be a pushup or down to retest the previous high or low. in trend. As shown below:



As you can see, when the inside bar is forming, it is more likely that the price will have a subsequent spike, so we need to calculate the wider stop loss.

You should place your stop loss 10 pips wider than your regular stop loss. For example if you stop loss 10 pips, then you should add 10 more extra pips, which is about 20 pips to your trading strategy.

It is difficult to determine the exact stop loss level, but if you practice a lot you will have experience and skills in this. Each currency pair will have a different stop loss.


THE INSIDE BAR IN THE MARKET IS TRENDING AND SIDEWAYS

The market is flat

Notice that the 5 inside bar candlestick patterns are highlighted in the image below:



The inside bar candlestick trading principle in a sideways market is very simple:
  • Determine the scope of the transaction
  • Only execute transactions close to support/resistance
Thus, looking at the figure above, we can identify the inside bar candles that can be traded are candles 1 and 2.

The market is trending

As shown below, there are 8 inside bar candlestick patterns forming:



Two conditions for trading with inside bar candles in a trending market are:
  • The trend is well established
  • There is no major support/resistance nearby
Thus, in the picture above we can see that only inside bar No. 4 is not profitable. The rest were successful.

Thus, it is very important to determine how the inside bar is formed under market conditions. It helps to eliminate poor quality inside bar candlestick patterns.


THE PSYCHOLOGY BEHIND THE INSIDE BAR CANDLESTICK PATTERN

It is not difficult to understand the psychology in this model. On the daily chart, it took 2 days for the inside bar to form on frame D1.

The first day. Larger candles formed. On day 2, small candle formed. When you look at the timeframe more closely, it feels like the accumulation period. As shown below:



Therefore, market sentiment during the inside bar candlestick formation is hesitation, waiting for traders who want to breakout transactions.

But for the most part, traders who participate in this candlestick formation are predicting the future market. This is not good for their strategy. The inside bar candle only showed market sentiment at that time, did not show any signs of future price forecast. Instead, we should focus on the better price action of the market.

SUMMARY

The inside bar candlestick is not the most popular candlestick pattern that traders often use in trading, but it is a very strong candlestick pattern if you know how to use it. Especially in markets with good trends or trade them on reversal points.

The inside bar candlestick pattern can signal trend continuation or reversal depending on where it appears.

Placing your stop loss with the inside bar should be placed a bit further to prevent sudden price pushes examining the previous low.