Inside Bar Trading Strategy – PriceAction.com (2024)

The Inside Bar Pattern (Break Out or Reversal Pattern)

An “inside bar” pattern is a two-bar price action trading strategy in which the inside bar is smaller and within the high to low range of the prior bar, i.e. the high is lower than the previous bar’s high, and the low is higher than the previous bar’s low. Its relative position can be at the top, the middle or the bottom of the prior bar.

The prior bar, the bar before the inside bar, is often referred to as the “mother bar”. You will sometimes see an inside bar referred to as an “ib” and its mother bar referred to as an “mb”.

Some traders use a more lenient definition of an inside bar that allows for the highs of the inside bar and the mother bar to be equal, or for the lows of both bars to be equal. However, if you have two bars with the same high and low, it’s generally not considered an inside bar by most traders.

Inside bars show a period of consolidation in a market. A daily chart inside bar will look like a ‘triangle’ on a 1 hour or 30 minute chart time frame. They often form following a strong move in a market, as it ‘pauses’ to consolidate before making its next move. However, they can also form at market turning points and act as reversal signals from key support or resistance levels.

How to Trade with Inside Bars

Inside bars can be traded in trending markets in the direction of the trend, when traded this way they are typically referred to as a ‘breakout play’ or an inside bar price action breakout pattern They can also be traded counter-trend, typically from key chart levels, when traded this way they are often referred to as inside bar reversals.

The classic entry for an inside bar signal is to place a buy stop or sell stop at the high or low of the mother bar, and then when price breakouts above or below the mother bar, your entry order is filled.

Stop loss placement is typically at the opposite end of the mother bar, or it can be placed near the mother bar halfway point (50% level), typically if the mother bar is larger than average.

It’s worth noting that these are the ‘classic’ or standard entry and stop loss placements for an inside bar setup, in the end, experienced traders may decide on other entries or stop loss placements as they see fit.

Let’s take a look at some examples of trading with the inside bar strategy:

Trading Inside Bars in a Trending Market

In the example below, we can see what it looks like to trade an inside bar pattern in-line with a trending market. In this case, it was a down-trending market, so the inside bar pattern would be called an ‘inside bar sell signal’:

Here’s another example of trading an inside bar with a trending market. In this case, the market was trending higher, so the inside bars would be referred to as ‘inside bar buy signals’. Note, often in strong trends like the one in the example below, you will see multiple inside bar patterns forming, providing you with multiple high-probability entries into the trend:

Trading Inside Bars against the Trend, From Key Chart Levels

In the example below, we are looking at trading an inside bar pattern against the dominant daily chart trend. In this case, price had come back down to test a key support level , formed a pin bar reversal at that support, followed by an inside bar reversal. Note the strong push higher that unfolded following this inside bar setup.

Here’s another example of trading an inside bar against the recent trend / momentum and from a key chart level. In this case, we were trading an inside bar reversal signal from a key level of resistance. Also, note that the inside bar sell signal in the example below actually had two bars within the same mother bar, this is perfectly fine and is something you will see sometimes on the charts.

Trading inside bars from key levels of support or resistance can be very lucrative as they often lead to large moves in the opposite direction, as we can see in the chart below…

Tips on Trading the Inside Bar Pattern

  • As a beginning trader, it’s easiest to learn how to trade inside bars in-line with the dominant daily chart trend, or ‘in-line with the trend’. Inside bars at key levels as reversal plays are a bit trickier and take more time and experience to become proficient at.
  • Inside bars work best on the daily chart time frame, primarily because on lower time frames there are just too many inside bars and many of them are meaningless and lead to false breaks.
  • Inside bars can have multiple inside bars within the mother range, sometimes you’ll see 2, 3 or even 4 inside bars within the same mother bar structure, this is fine, it simply shows a longer period of consolidation, which often leads to a stronger breakout. You may see ‘coiling’ inside bars sometimes, these are inside bars with 2 or more inside bars within the same mother bar structure, each inside bar is smaller than the previous and within the high to low range of the previous bar.
  • Practice identifying inside bars on your charts before you try trading them live. Your first inside bar trade should be on the daily chart and in a trending market.
  • Inside bars sometimes form following pin bar patterns and they are also part of the fakey pattern (inside bar false-break pattern), so they are an important price action pattern to understand.
  • Inside bars typically offer good risk reward ratios because they often provide a tight stop loss placement and lead to a strong breakout as price breaks up or down from the pattern.

I hope you’ve enjoyed this inside bar pattern tutorial. For more information on trading inside bars and other price action patterns, click here.

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Inside Bar Trading Strategy – PriceAction.com (2024)

FAQs

How accurate is inside bar trading strategy? ›

Ideally, the Inside Bar should form within the Mother Bar's upper or lower half. An Inside Bar formation right after a price breakout in the current trend provides the most accurate signals. This is because it indicates that the current trend is going to end, and the market will reverse.

What is the win rate for inside bar strategy? ›

Control Benchmark - Inside Bar

Within our back-testing period, the winning percentage of inside bars is 37.33% in a sample size of 4107.

Is inside bar trading profitable? ›

There's no doubt that inside bars can be a profitable way to trade the Forex market, equity, commodity or any other market. After all, it's a setup that it teaches as part of the price action course and one that has served extremely well.

What is the inside bar strategy for day trading? ›

Inside bars show a period of consolidation in a market. A daily chart inside bar will look like a 'triangle' on a 1 hour or 30 minute chart time frame. They often form following a strong move in a market, as it 'pauses' to consolidate before making its next move.

Which trading strategy has the highest success rate? ›

Indicator-Based Directional Trading

This strategy uses an indicator to determine the direction of the trade. The indicator provides a clear signal when it's time to enter or exit a trade, making it easy to work with. Traders who use this strategy can expect to see consistent results and high success rates.

Which trading indicator has the highest accuracy? ›

Which is one of the most accurate trading indicators? The most accurate for trading is the Relative Strength Index. It is considered one of the best momentum indicators for intraday trading. It helps investors identify the shares which are bought and sold in the market.

What is an acceptable win rate? ›

Defining a good win rate depends on your company, niche market, and product. However, a rate of over 60% is considered a strong indicator that you have efficient and effective sales strategies. Some industries might have lower success rate expectations because of the size and complexity of the target market.

What is inside bar breakout strategy? ›

An Inside Bar pattern is a two-bar price action trading strategy where the inside bar is smaller and within the high-low range of the previous bar (popularly known as mother bar). The relative position of the inside bar can be present at the bottom, middle or top of the inside bar.

What is the NR7 inside bar strategy? ›

Refining NR7 Strategy with Inside Bar Theory:

The inside bar strategy is a price action strategy and is also based on the same theory of expansion and contraction but here the expansion and contractions are defined based on different rules. So, the probability of winning automatically improves.

What is the 15 min inside bar strategy? ›

If you are a scalper, you can use the inside bar in a 15-minute timeframe or lower. Using this forex trading strategy, you look for the inside bar in an uptrend or downtrend, wait for the pattern to fully appear, and double-check the price action through an indicator or support/resistance levels.

Does the color of the inside bar matter? ›

First, unlike other candlestick patterns, inside bars are usually not distinguished as bullish and bearish by their look or color of the body itself, but rather by the location they are at and other peripheral developments.

What is a bullish inside bar pattern? ›

An inside bar can be either bullish or bearish, depending on its context within the price action. If it forms within a downtrend, it can be considered bearish, indicating potential continuation. If it forms within an uptrend, it can be seen as bullish, suggesting a potential continuation of the upward trend.

What is the number one rule in day trading? ›

The so-called first rule of day trading is never to hold onto a position when the market closes for the day. Win or lose, sell out. Most day traders make it a rule never to hold a losing position overnight in the hope that part or all of the losses can be recouped.

Is inside bar bullish or bearish? ›

In this case, the bearish candle (mother bar) represents a broader downtrend, while the bullish candle (inside bar) represents consolidation after the large decline.

What time frame is best for inside bar? ›

Because there are simply too many inside bars on smaller time frames, many of which are worthless and result in false breaks, inside bars perform best on the daily chart time frame.

What is the 15 minute inside bar strategy? ›

If you are a scalper, you can use the inside bar in a 15-minute timeframe or lower. Using this forex trading strategy, you look for the inside bar in an uptrend or downtrend, wait for the pattern to fully appear, and double-check the price action through an indicator or support/resistance levels.

Is inside bar pattern bullish or bearish? ›

Is an inside bar bullish or bearish? It does not inherently indicate a bullish or bearish bias. It simply represents a period of consolidation or indecision in the market. So, the formation occurring within an uptrend can be bullish and signal a trend continuation or bearish and signal a trend reversal.

What are the most accurate patterns in trading? ›

Here's our list of 10 popular and reliable stock chart patterns used in technical analysis:
  • Triangle patterns.
  • Flags and pennants patterns.
  • Cup and handle pattern.
  • Wedge pattern.
  • Rounding tops and bottoms pattern.
  • Inverse head and shoulders pattern.
  • Three white soldiers and three black crows pattern.
  • Rectangle pattern.
Feb 28, 2024

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