inside bar forex

Mastering the Inside Bar Forex Strategy: A Step-by-Step Guide

Let’s examine our first example to illustrate that an inside bar can be considered a bullish variant based solely on its position on the chart, rather than its color. First, a long-bodied red candle, which serves as the pattern’s first candle (the mother bar), formed. This was followed by a much smaller bearish candle that resembles a doji, given how close the open and close prices are. This formation signals a pause in market momentum and often precedes significant price movements. Traders watch these patterns closely as they frequently indicate potential breakout opportunities, especially when they appear during established trends. Successful implementation requires proper risk management, including strategic stop-loss placement and position sizing.

Spotting the Inside Bar in Forex Trading

• By understanding how to spot inside bars and incorporating them into your trading strategy, you can enhance your ability to make informed trading decisions.
• For stop loss placement, you can choose to place it below the low of the inside bar for a long trade or above the high of the inside bar for a short trade.
• Traders might look for Inside Bars that form after a pullback to a moving average in a trending market, which can indicate a potential trend continuation.
• What is most important is that the inside bar trading setup must adhere to pre-defined rules that the trader sets up per his own trading plan.

A couple of candles later and the price did break above the high of the inside bar pattern. In this market environment, where the trend did not reverse but instead shifted to a sideways movement, means that market sentiment remains uncertain for this trade. Forex trading is an exciting and potentially profitable venture for those who are willing to put in the time and effort to learn the intricacies of the market. One popular trading strategy that many traders swear by is the inside bar strategy.

• In our case the price action breaks the inside range in bullish direction.
• Market Context – The inside bar is a neutral pattern that can occur in any market trend (uptrend, downtrend, or even sideways).
• As a result, you may often get away with placing your take-profit target a little farther away from your entry in the stock market than in the forex market.
• After the trade is closed, take the time to review and analyze the trade.

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 forex inside bar has nothing to do with the candles’ colors and everything to do with the pattern’s position on the chart. An inside bar is considered bullish when it serves as either a continuation pattern during an uptrend or a reversal pattern during a downtrend. We will discuss this further and provide an example in the following sections. The Inside Bar Forex strategy offers traders a reliable method for identifying potential market breakouts through simple price action analysis.

How to Trade the Head and Shoulders Pattern

The important criteria of this pattern are the opening and closing prices of the first candle known as the Preceding candle or Mother Candle. As a deciding factor, the first candle must completely engulf the second candle. If you need more clarity on the market trend, you can place the 20 EMA indicator as a trend guide just as we did on the Meta chart up there. The EURJPY example above works for us, because there was no immediate resistance above. The stop loss would need to be 100 pips away from our entry, and the trade would have easily given us 200 pips or more. Said differently, the previous candle completely “engulfs” the inside bar.

For Exit strategies, you can set a Stop Loss below the Low of the Mother Bar (for buy positions) or above the High of the Mother Bar (for sell positions). If you have profit targets, you can use a risk/reward ratio or apply a Trailing Stop to take advantage of the trend continuing after the Inside Bar forms. The Trailing Stop not only secures your account from big losses but also locks in previously gained profits. When the price action completes an inside candle on the chart, you should mark the low and high of the Inside Bar consolidation range.

To identify an Inside Bar, traders must scrutinize the price action, looking for a candle that is completely ‘inside’ the range of the previous candle, known as the ‘Mother bar’. Whether you’re engaged in scalping, day trading, or swing trading, recognizing an Inside Bar can provide a strategic edge, offering clues to the currency pairs next directional thrust. The reliability of the inside bar strategy in trading depends heavily on the market context and the effective use of complementary technical analysis tools. 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. However, incorporating volume significantly increases its reliability as a candlestick pattern. First, unlike other candlestick patterns that have specific use cases and are only applicable to certain market conditions, the inside bar setup offers a more versatile use case in trading.

If you are a fan of pure price action Forex trading using candlestick patterns, then this lesson will be of particular interest to you. Today we will discuss a powerful candlestick formation which can often precede a sharp price move. Candlestick charts reflect the underlying price action in the market.