Today’s lesson is an introduction to the inside bar signal and how to trade it. It’s really one of my favorite patterns to trade, especially on the daily chart time frame. Why, you ask?
It’s simple. The inside bar pattern shows a pause or indecision in the market, and depending on the surrounding price context it formed within, this provides us with an extremely valuable clue about what a market is about to do next.
Let’s get started with some introductory concepts and theory on inside bars…
What is An Inside Bar?
An inside bar pattern is a multi-bar pattern that consists of a “mother bar” which is the first bar in the pattern, followed by the inside bar. An inside bar pattern can sometimes have multiple inside bars within the same mother bar.
Here is what standard inside bars look like:
As you can see by the image below, inside bars can form exactly in the middle of the mother bar or close to either the high or low, there is not an EXACT way they have to look, just as long as they are contained within high to low distance of the mother bar
4 Variations of Standard Inside Bars
1. Double (multi) inside bar
The “double inside bar” consists of two inside bars within the structure of the mother bar. They are pretty common and often times you will even see 3, 4 or sometimes (rarer) even more inside bars within the same mother bar structure. These patterns signify a prolonged period of indecision in the market and they can come before very powerful breakout moves…
2. Coiling Inside Bars
Coiling inside bar patterns occur when 2 or more inside bars are “coiling” up tighter and tighter like a spring, within one another. Pay special attention when you see these because they mean the market is contracting and just like a spring wound up tighter and tighter, eventually it’s going to “release” and explode into a powerful move (in many cases).
3. Fakey Pattern (inside bar false-break)
The fakey trading pattern is very important in regards to inside bars because there is an inside bar pattern within a fakey. As you can see below, a fakey is actually a false break out from an inside bar pattern. It’s literally where price initially breaks one way from an inside bar pattern, but then quickly reverses, sucking everyone out who was wrong and then charging back the other direction. Obviously, these are giving us VERY intelligent clues as to the next potential direction in price.
4. Inside Bar Pin Bar Combo Pattern
As we all know, pin bars are one of the best price patterns you can trade and when it’s when you get a pin bar that is also an inside bar, that you have an inside bar pin bar combo pattern.
When you combine a pin bar into an inside bar, you are getting both a “wind-up” that is going to be released and a pin bar with a tail / shadow that indicates the next potential direction of the market. Hence, an inside bar is not just a pause in the market, it’s a pause with an extra piece of confluence behind it, and as a result, a more powerful price action signal.
Trading Inside Bar Patterns
There are essentially two main ways we can look to trade inside bars, as with most other patterns; as a continuation signal or as a reversal pattern.
Now, I prefer to trade them as continuation signals in trending markets on the daily chart, because that’s the easiest way to trade them quite frankly. However, inside bars CAN indeed be very powerful at major support and resistance levels as reversals. Let’s look at some examples:
Trading Inside Bars as Continuation Moves
The “classic” way to trade an inside bar pattern, and the way that I love trading them the most, is within a trending market, as a continuation move.
An inside bar is much easier to take in a trending market because the odds are already in your favor for trading with the trend. The inside bar will many times lead to a breakout or continuation in-line with the existing trend direction. They can provide a good structure to try to pyramid your trade into a huge win.
Tip: Avoid trading inside bars at major levels until the level has cleared, because many times such inside bars will create a false break at the major level.
Trading Inside Bars as “Stall Patterns” / Reversals
Sometimes, you can trade an inside bar as a reversal / stall pattern where price “stalls” out at a level and that leads to a reversal back the other direction.
In the chart below, we can see an example of a good inside bar reversal signal. Notice that the inside bar formed at a key chart level, indicating the market was hesitating and “unsure” if it wanted to move any higher. We can see a strong downside move occurred as price broke down past the inside bar’s mother bar low..
Please note that trading inside bars as reversal patterns should ONLY be tried after you have successfully mastered trading them in-line with the daily chart trend as continuation / breakout plays, as we discussed above.
Special Inside Bar Trading Tips
Here are some of my tips and tricks when trading inside bars. These are things that I learned over the years that will improve your chances of success when trading this pattern:
Tighter inside bar patterns and coiling inside bar patterns often lead to explosive large break out moves. This is because of the “stored energy” that took place as the market “coiled”, that energy typically gets released in the form of a strong breakout move…
Patterns containing smaller inside bar patterns allow tighter stop losses and great risk reward, these are the ideal candidates.
Be wary of patterns with both very large mother bars and large inside bars, these can often be difficult to trade due to lots of false signals and they make it more difficult to manage risk.
My favorite 2 patterns are – Fakey signals and – Inside bar pin bar combos.
We must learn to filter inside bars because the one bad thing about them is that a lot of them form across all time frames. However, with proper training and experience on the charts, you will learn to differentiate.
This was a basic introduction to the inside bar signal and how I trade it, I cover this pattern and much more in my advanced price action trading courses. Upon joining, some of what you will learn is:
More inside bar variations and how to trade them.
More example charts.
Members trading discussion forum, including inside bar discussion
Daily members on-going daily and weekly market commentary where we discuss potential inside bar trade setups as they form.
Members trading videos and articles library that includes more in-depth inside bar trading training.
Email coaching & Support line.
On-going updates for free
I hope you found today’s lesson helpful and inspiring. Inside bars are truly one of the most interesting and powerful price action signals so I hope you enjoyed learning about them and that you’ll continue to do so.