Inside Candle: Meaning, Types, Trading Tips & Strategies | Finschool (2024)

What is Inside Candle Pattern??

• Engulfing patterns, whether bullish or bearish, are the reverse of inside candles. The first candle totally consumed the second candle in this kind of arrangement. To put it another way, an inside candlestick pattern is created when the high and low of the current candlestick are contained by the high and low of the preceding candlestick. It suggests that there hasn’t been much price change since the preceding candle.
• The Mother candle or Preceding candle is the first candle in the two candlestick designs, while the Inside candle is the second candle. An inside candle forms entirely within the previous candle’s trading range.
• This particular two-candle pattern suggests that the trend may be continuing or reversing. After a dramatic up or down move in which one of the bulls or the bears has triumphed, an inside candle shows that there was a tighter battle between the two. The inside day candlestick establishes a regular range between the high and low of the preceding trading day by the use of a price bar. It is a two-bar pattern that is applied to several original trading tactics.
• The inner day chart pattern is seen by forex traders as a hint of market consolidation or a potential breakout. Due to its adaptability, numerous intraday, swing, or inner day trading methods may be successfully implemented.

Bullish Inside candle

• Active traders who depend on technical analysis have access to a wealth of information inside days. When an inside day candle meets the requirements listed below, it is seen as bullish:
• The ending price of the candle is higher than the initial price.
• The inside day takes place within a clear upward trend.
• If considered bullish, a forex trader would be likely to use a buy or long inside day trading strategy.

Bearish Inside candle

Bearish inside days, as opposed to bullish inside days, indicate upcoming sell-side pressure. When the following criteria are met, a day inside is deemed bearish:

• The price of the candle is lower at closure than it was at opening.
• The inner day takes place during a clear downturn.
• Typically, the bearish inside day takes place amid a larger bad market. Sell-side techniques can therefore be put into practice.

Inside day candlestick pattern

It is simple to identify the day candle inside. All you require is a daily chart with Japanese candles. A candle will be considered an interior candle if it possesses the qualities listed below:

• The candlestick’s high is higher than it was the day before.
• The candlestick’s low is higher than the low of the prior day.
• Visually, the candle from the day before has consumed the present candle. Due to its condensed trading range, it is therefore regarded as an inside pattern.

How can you trade an inside bar candle pattern

• It is simple for a beginner trader to understand how to trade inside bars that match the dominating daily chart trend or that match the trend. It will take more time and practice to get proficient with inside bars at the reverse since they are a little difficult.
• Because there are too many inside bars in the smaller time frames, many of them are worthless, and they will generate false breakouts, inside bar candles perform best on the daily chart time frame.
• Within the mother candle, an inner bar may contain more inside bars. Occasionally, a mother candle will include 2, 3, or even 4 inner bars.
• Simply said, this will demonstrate a lengthier period of consolidation, which frequently precedes a very powerful breakthrough.
• Before attempting to trade within bars live, you must practice recognizing them on the charts. The daily chart and the daily trend should have your very first inside bar.
• Inside bar candles are a crucial price action to comprehend since they might result in pin bar patterns and are a component of the fakey pattern.
• Because inside bars frequently provide us a precise stop loss location and will frequently result in a big breakout when the price breaks up or down from the pattern, they will generally have favorable risk-reward ratios.

Inside bar candlestick pattern tips and strategy

• Trending markets allow for the trading of inside bars in the direction of the trend; when done so, they are referred to as “breakout plays” or inside bar price action breakout patterns. They may also be traded against the trend, usually from important chart levels; when done so, they are known as inside bar reversals.
• Place a buy stop or sell stop at the high or low of the mother bar, and when the price breaks above or below the mother bar, your entry order is completed. This is the traditional entry for an inside bar signal.
• If the mother bar is larger than normal, the stop loss location is often at the opposite end of the mother bar or towards the halfway point (50% level).
• It’s important to note that these are the “classic” or typical entry and stop loss placements for an inside bar situation. However, seasoned traders may choose to enter or place stops losses in alternative ways.
• It’s simplest for a beginner trader to understand how to trade inside bars that are ‘in line with the trend,’ or parallel to the main daily chart trend. Key levels’ inside bars as reversal plays are a little difficult and require more practice and skill to master.
• 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.
• Occasionally, you’ll see two, three, or even four inner bars within the same mother bar formation. This is acceptable since it merely indicates a longer period of consolidation, which frequently results in a larger breakout. inner bars that have two or more inner bars within the same mother bar structure are known as “coiling” inside bars. Each inside bar is smaller than the one before it and falls within the high to low range of the preceding bar.
• Before attempting to trade within bars live, practice spotting them on your charts. Your initial insider transaction should be placed in a trending market on the daily chart.
• Inside bars are a crucial price action pattern to comprehend since they can occasionally create pin bar patterns and are also a component of the fakey pattern (inside bar false-break pattern).
• Because inside bars frequently give a tight stop loss placement and generate a big breakout as price breaks up or down from the pattern, they generally have favorable risk-reward ratios.

Conclusion

Pros:

• All asset classes regularly experience inside day candles. Inside days are quite prevalent, from the stock market to cryptocurrencies.
• A product may be purchased or sold inside bars. The trader’s strategy options are improved, and prospective possibilities are increased.
• Both trending and rotating markets may allow for profitable trading of the formation.

Cons:

• It can be costly and difficult to trade successfully with daily ranges.
• In sideways or flat markets, inside candles frequently result in misleading breakthrough indications.
• It sometimes takes a long time for within day range trades to become profitable or losing. This consumes money and may result in lost opportunities.
• One of the most often utilized chart patterns by technical traders is the inside day candle. Before using this potent tool into your trading approach, consider the following information.
• Two candles make up the interior day bar. It occurs when the high and low of the daily bar for the current day are within those for the previous day.
• Either a bullish or bearish pattern is possible. Because of its adaptability, the indicator can serve as a buy or sell indication.
• Many trend-following or rotational trading methods are based on inside days.
• Inside candle methods can be costly and challenging to trade well in whipsaw market situations, despite the fact that they are frequently effective.