Inside Bar? Have you ever noticed that sometimes the Forex market seems to pause, almost as if it’s taking a deep breath before making its next move?
Traders who understand these moments can use them to their advantage.
One of the easiest ways to recognize these “pauses” in price movement is by identifying a pattern called the Inside Bar.
If you’re new to Forex trading or even if you’ve been trading for a while but still struggle with identifying strong trade signals, understanding the Inside Bar pattern can help you make better decisions.
But what exactly does it mean, and how can it improve your trading? Keep reading to find out.
In This Post
What Is an Inside Bar?
An Inside Bar is a type of candlestick pattern that appears on Forex price charts. It forms when the current candle (price bar) is completely inside the range of the previous candle.
This means the high and low of the smaller candle do not go beyond the high and low of the previous candle.
Let’s say the market was moving strongly in one direction, but then suddenly, price movement slows down, and a smaller candle forms inside a bigger one. This is an Inside Bar.
Features of an Inside Bar
The second candle (the Inside Bar) is smaller than the first candle.
The highest price and the lowest price of the second candle stay within the range of the first candle.
It shows a period of market hesitation or consolidation (a short pause before making a move).
This pattern often signals that a big price movement could happen soon, which is why traders pay close attention to it.
Why Is the Inside Bar Important in Forex Trading?
The Inside Bar pattern is important because it tells traders that the market is in a moment of indecision.
It shows that buyers and sellers are taking a break before deciding which direction to push the price next.
This pattern is like a coiled spring, it’s tight and ready to explode in one direction.
When the price finally breaks out of the Inside Bar’s range, it usually moves quickly and strongly. This is why traders look for this setup when planning their trades.
What Does the Inside Bar Tell Us?
- Price Consolidation: The market is pausing before making its next move.
- Potential Breakout: After an Inside Bar forms, a strong price movement (breakout) can happen.
- Market Indecision: Buyers and sellers are not sure which direction the market will go yet.
How to Identify an Inside Bar on a Forex Chart
They are:
Step 1: Look for a Larger Candle
The first thing to do is find a large candle (this is called the “mother bar”). This candle has a higher high and a lower low.
Step 2: Check the Next Candle
The next candle (the “Inside Bar”) should be completely inside the range of the first candle.
The high of this candle should be lower than the high of the first one, and the low should be higher than the low of the first one.
Step 3: Wait for a Breakout
A breakout happens when the price moves above or below the range of the Inside Bar.
This breakout tells traders whether the market is likely to move up or down.
How Traders Use the Inside Bar in Forex Trading
There are a few ways traders use Inside Bars in their strategies.
1. Inside Bar Breakout Strategy
This is the most common way traders use Inside Bars. The idea is simple:
- If the price breaks above the Inside Bar’s high, it could be a signal to buy.
- If the price breaks below the Inside Bar’s low, it could be a signal to sell.
Traders often set their entry points just outside the Inside Bar’s range. This helps them catch the price movement as soon as the market decides which way to go.
2. Inside Bar as a Trend Continuation Signal
If the market is in an uptrend (prices are moving up), an Inside Bar can signal a brief pause before the price continues rising.
If the market is in a downtrend (prices are moving down), an Inside Bar can show that the price is taking a break before dropping further.
3. Inside Bar for Risk Management
Since the Inside Bar pattern has clear high and low points, traders can use it to set their stop-loss orders.
- A stop-loss is a safety measure that helps traders limit their losses if the price moves in the wrong direction.
- Many traders place their stop-loss just outside the Inside Bar’s range.
This way, if the trade goes against them, they don’t lose too much money.
Advantages of Trading with Inside Bars
The Inside Bar is a powerful and simple trading pattern that offers several benefits:
The pattern is simple and does not require complicated indicators.
Inside Bars can be found in both trending and sideways markets.
Traders know where to enter and exit their trades.
The pattern allows traders to set precise stop-loss orders.
Things to Watch Out for When Trading Inside Bars
Even though the Inside Bar is a strong trading signal, it’s not perfect. Below are some things to keep in mind:
1. False Breakouts
Sometimes, the price moves slightly outside the Inside Bar’s range but then goes back inside. This can trick traders into entering bad trades.
2. Market Conditions Matter
Inside Bars work best in trending markets. In choppy or sideways markets, they can give false signals.
3. Not All Inside Bars Are Equal
The best Inside Bar setups happen after a strong price movement. If an Inside Bar forms in a weak or slow-moving market, it may not lead to a big breakout.
To avoid false signals, traders often use additional indicators like Moving Averages or RSI (Relative Strength Index) to confirm their trades.
Conclusion
The Inside Bar is one of the most important Forex candlestick patterns. It signals a moment of indecision in the market, followed by a potential strong move.
By mastering the Inside Bar, traders can Spot high-probability trade setups, Improve their risk management, and enter and exit trades with more confidence.
However, like any trading strategy, it’s essential to practice and test before using real money. Always remember to combine the Inside Bar pattern with other trading tools to increase your chances of success.
So, next time you’re analyzing a Forex chart, keep an eye out for an Inside Bar.