Inside Bar Pattern

What is an Inside Bar Pattern?

An Inside Bar Pattern is a two-bar price action trading strategy. The inside bar is smaller and lies within the high to low range of the prior bar, also known as the "mother bar". The high of the inside bar is lower than the previous bar’s high, and the low is higher than the previous bar’s low. This pattern can be found at the top, middle, or bottom of the prior bar.

Components of an Inside Bar Pattern

• Mother Bar (MB): The larger bar that precedes the inside bar.
• Inside Bar (IB): The smaller bar that is completely engulfed by the mother bar.

Significance of Inside Bar Patterns

Inside bars indicate a period of consolidation in the market. They often form after a strong move, as the market pauses to consolidate before making its next move. They can also appear at market turning points and act as reversal signals from key support or resistance levels.

Trading the Inside Bar Pattern

• Breakout Strategy: Traders often place buy orders above the high of the mother bar and sell orders below the low of the mother bar, anticipating a breakout.
• Reversal Strategy: Inside bars at key support or resistance levels can signal potential reversals. Traders might look for confirmation before entering trades.

Examples of Inside Bar Indicators

Several trading indicators and robots utilize the Inside Bar Pattern. For instance, the "Inside Bar Dashboard" displays the last found Inside Bar and Mother Bar patterns, the current price position, and the breakout levels of these bars. It can send notifications when levels are broken, making it easier for traders to spot and act on these patterns.

Inside Bar Variations

Some traders use a more lenient definition of an inside bar, allowing for the highs or lows of the inside bar and the mother bar to be equal. However, two bars with the same high and low are generally not considered an inside bar by most traders.

Practical Tips for Trading Inside Bars

• 📊 Use Multiple Time Frames: A daily chart inside bar will look like a triangle on a 1-hour or 30-minute chart.
• 🔔 Set Alerts: Use indicators that can send alerts when an inside bar forms or breaks out.
• 📈 Combine with Other Indicators: Enhance the reliability of inside bar signals by combining them with other technical indicators like moving averages or RSI.

Common Mistakes to Avoid

• 🚫 Jumping the Gun: Don’t enter trades immediately upon spotting an inside bar. Wait for confirmation.
• 🚫 Ignoring Market Context: Always consider the broader market context and other technical indicators before making a trade based on an inside bar.