The Inside Bar pattern introduction
Price action trading relies on the movements of the price on the chart. The candlesticks often form patterns which repeat themselves and thus, can be used to predict the future price direction. The inside bar pattern is an example of such and I will describe it for you today.
There are two price bars in the inside bar pattern. The main rule is that the second one is inside the first one, that is, it’s low lies higher and it’s high lower in comparison to the first bar. It can be positioned in the middle, at the bottom, or the top.
The above is considered to be correct by most of the traders. Some, however, allow the possibility that the lows or highs of the two candles are equal.
The bars in the pattern are often called the Mother bar or MB and the Inside bar (IB).
The inside bar represents the moment of price consolidation. Such a pause often happens after a strong movement. Then, the previous direction is undertaken. Sometimes, it is possible to trade trend reversals with the inside bar pattern. You should combine it with the support and resistance levels on these occasions.
Trading with the inside bar pattern at Olymp Trade
There are a few ways of trading with the inside bar pattern. But the following two are the most commonly used.
The first method is to use the inside bar pattern when the market is trending. You trade along with the trend. You may hear the expression a ‘breakout play’ or an inside bar breakout.
The second way, known also as an inside bar reversal, involves trading against the trend. It is then traded from important price levels (support or resistance).
Typically, traders set pending orders at the low or high of the Mother bar. Let’s take a closer look at entry points for your trades.
Trading the inside pattern along with the trend on the Olymp Trade platform
Opening a sell position during the downtrend
When you trade along with the trend and there is a downtrend in the market, you should open a sell position with the inside bar pattern. It is then called an ‘inside bar sell signal’. Use this strategy for currency pairs (CFDs), although you may find a way to trade it using Fixed Time Trades as well. In order to enter a trade, you set the pending order at the bottom of the Mother bar, just below the Low value of that candle.
Opening a buy position during the uptrend
You receive an ‘inside bar buy signal’ when there is the uptrend in the market. Your pending order should be set at the high of the Mother bar, just above the High value.
With strong trends, you will probably notice many inside bar patterns and thus, you will get many opportunities to enter the trade.
Trading the inside pattern against the trend on the Olymp Trade platform
Opening a sell position with the inside bar pattern and resistance level
Below, you see the EURUSD chart with the resistance level marked. The inside bar pattern has developed on the resistance line, during the uptrend. You trade against the current direction so you should open a sell position. Here you can also use a pending order to sell at the price just below Mothers Low.
Opening a buy position with the inside bar pattern and support level
On the other chart for the NZDUSD currency pair, a support line is drawn. The inside bar pattern has developed on this key level, informing about the trend reversal. You should open a buy position. Again, you can utilize a pending order and set a buy order just above the High value of the Mother bar.
When the inside bar pattern appears on the key price levels, it is often followed by a strong move. This gives you high chances to make a profit.
Final instructions to trade with the inside bar pattern
You can often hear the advice ‘trade with the trend’. Also in this case, especially if you are at the beginning of your trading journey, it is recommended to trade the inside pattern along with the existing trend. Trading reversals is a little bit more complicated and it requires some trading experience.
The best chart time frame to use the inside bar pattern is a 5-minute or above. Don’t try to use it with 1-minute candles. Such a small time frame will give you many false signals.
Occasionally, you will notice a few Inside bars after the Mother bar. It can be 1, 2 or even 4 candles. Each will be smaller than the previous one. They inform about a longer consolidation period. The breakout which will occur after that is often very powerful.
Be aware of the inside bar patterns which develop after the pin bar patterns. They usually give false signals so it is important you can identify different patterns on the chart.
Try recognising the inside bar pattern on your Olymp Trade demo account first. Choose the trending markets and trade in line with the trend. Be very wary of trying this with real money–this strategy is not a guarantee for profit. Be prepared to deal with losses, especially at the beginning.
Share your thoughts about the inside bar strategy in the comments section down below the site.
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