- 1 Overview of the Inside Bar pattern
- 2 How do you use the inside bar strategy?
- 3 How to trade the inside bar pattern against the trend from important price levels
- 4 How to trade the inside bar pattern along with the trend on IQ Option
- 5 Pros and Cons of Using Inside Bar Patterns in Trading👍👎
- 6 A couple of advice about trading with the inside bar pattern on the IQ Option platform
- 7 Frequently Asked Questions🙋♀️
- 8 GENERAL RISK WARNING
Overview of the Inside Bar pattern
I'm sure you've heard of the inside bar more than once. Today we will present the most complete characteristics of this frequent visitor on price charts.
Trading with the price fluctuations is called price action. It is based on the candlestick patterns that develop on the price chart. Their repetitive character makes them useful tools that can help in identifying the best points of entry for your trades. This article is about one such pattern which is known as the inside bar pattern.
The inside bar pattern is formed by two candles. The first one, which is often named as the Mother bar (MB), fully engulfs the second one, called also the Inside bar (IB). The Inside bar can be in the middle of the Mother bar, near the top or bottom. More important is that it is located inside the Mother bar which means that the low of the IB is higher than the low of the MB and its high is lower than the high of the MB.
Sometimes, it is acceptable for the traders, that the lows of the MB and the IB, or their highs, are at the same level.
When the inside bar pattern appears, it gives information that the price pause in its momentum and consolidates. After a while, it undertakes the former direction. This often takes place during a strong rise or fall in the prices.
The reversals of the trend can be also traded with the help of the inside bar pattern. It is recommended, however, that you use additional tools such as the levels of support and resistance.
Is an inside bar bullish or bearish?
A very good question. An inside bar can be a bullish or bearish pattern. It all depends on the direction of the breakout. An inside bar can be a reversal or continuation pattern. It all depends on the situation. If we looked at the inside bar on the hourly chart on a 5-minute or 1-minute timeframe it would probably look like the triangle pattern known from technical analysis. Triangles can also represent a reversal or continuation pattern depending on the direction of the breakout.
How do you use the inside bar strategy?
We will focus on two main trading methods with the use of the inside bar pattern. They are applied most frequently. There are, nonetheless, more ways than these two.
One of the most popular ways is to trade along with the trend. It is often called the inside bar breakout or the breakout play.
The second method requires trading against the current trend and is referred to as the inside bar reversal. It is crucial that you add the support and resistance levels to the chart.
When to enter the trading position? Usually, the pending orders are set by the traders at the low or high of the first candle in the pattern.
How to trade the inside bar pattern against the trend from important price levels
Trading with the inside bar pattern on the support level
Below, you will find the EURUSD chart with the support level added to it. After a short downtrend, the inside bar pattern has formed on the support. This gives a signal the trend will reverse. Thus, this is a good moment to enter a buy trade. You can set a pending buy order above the Mother bar's high or enter the trade manually. You can also try to use the binary option. Just keep in mind that if your analysis is based on a 5-minute chart, your expiration should be at around 15 minutes or more.
Trading with the inside bar pattern on the resistance level
Another chart for the USDCHF currency pair shows a good moment to enter a sell position. There was an uptrend and then, the inside bat pattern has developed on the resistance level. Open a sell position here or set the pending sell order below the low of the Mother bar.
Trading the inside bar pattern against the current trend from important key levels creates good opportunities to gain profits. That is because the price often moves rapidly afterwards.
How to trade the inside bar pattern along with the trend on IQ Option
Using the inside bar pattern to open a buy trade
Look at the chart below. The price has been going upwards for some time. Then, the inside bar pattern develops. It is used here as a continuation pattern. Hence, you can enter a buy trade. You may choose to set a pending buy order above the Mother bar's high too. It is possible to enter the market manually. For inside bar continuation pattern, binary options will work as well. Just remember to set proper expiration time. For a 5-minute chart use 15 minutes duration or more.
Using the inside bar pattern to open a sell trade
You get the inside bar sell signal when there is a downtrend in the market and the inside bar pattern has evolved in the course of it. Enter a sell trade or use the pending order for a sell transaction below the low of the Mother bar.
When the trend is strong, you may have many chances to spot the inside bar continuation pattern as they appear frequently then. Use them to trade along with the trend.
Pros and Cons of Using Inside Bar Patterns in Trading👍👎
- 🔹 Can be used as both a trend reversal and continuation pattern
- 🔹 Versatile and applicable to various timeframes and market conditions
- 🔹 Easy to identify and interpret on price charts
- 🔸 False signals may occur, especially during periods of low volatility
- 🔸 Not as effective when used in isolation, without support from additional technical indicators
- 🔸 Requires experience and skill to trade effectively and consistently
|Key Components of Inside Bar Patterns||Common Trading Strategies|
|Mother Bar (MB)||Inside Bar Breakout (Trend Continuation)|
|Inside Bar (IB)||Inside Bar Reversal (Trend Reversal)|
|Support and Resistance Levels||Trading with the Trend from Key Price Levels|
A couple of advice about trading with the inside bar pattern on the IQ Option platform
Trade along with the trend if you are a rookie trader. Using the pattern to trade reversals of the trend is more challenging and therefore you should gain some experience before you start trading against the trend.
Small time frames are more difficult to analyse and may produce false signals. So avoid 1-minute period candles and try a 5-minute time frame or even a higher one.
You may notice that sometimes there are more than one inside bars. It is possible that there will be even 4 candles inside the Mother bar. And the next one will be shorter than the former candle. This is a signal that the consolidation is long and the expected breakout will be strong.
Begin with the IQ Option practice account. This is a place where you can try using the inside bar pattern in a risk-free environment. Once you get hold of it, move to the live account.
If you have any comments on the inside bar pattern topic, kindly use the comments section below.
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Frequently Asked Questions🙋♀️
- Q: How can I improve my success rate when trading with inside bar patterns?
- A: Combine inside bar patterns with additional technical indicators, such as support and resistance levels, to increase the accuracy of your trades.
- Q: Can I use inside bar patterns for trading stocks, cryptocurrencies, and other assets?
- A: Yes, inside bar patterns can be applied to various financial instruments, including stocks, forex, cryptocurrencies, and commodities.
- Q: Is the inside bar pattern suitable for beginner traders?
- A: While the inside bar pattern is relatively easy to identify and interpret, it requires experience and skill to trade effectively. Beginners should practice on a demo account before trading with real money.
- Q: How do I know if an inside bar pattern is signaling a trend reversal or continuation?
- A: The direction of the breakout, as well as the context of the pattern within the broader market trend, can provide clues about whether it's signaling a reversal or continuation.
- Q: How do I set a stop loss and take profit when trading with inside bar patterns?
- A: A common practice is to set the stop loss below the low of the Mother bar for long positions or above the high of the Mother bar for short positions. Take profit can be set based on your preferred risk-reward ratio, or by using technical analysis to identify potential target levels.
GENERAL RISK WARNING
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