Understanding Inside Bar Strategies – Types, Strategies and More

Inside Bar Strategy: Traders need an accurate understanding of price movements to spot accurate opportunities in any market situation. Every strategy prevalent in the market has its functions in different market situations.

In this article, we will discuss one of the prominent candlestick patterns, namely the internal bar pattern. To help you understand, let’s look at the meaning, structure, and strategy through chart examples.

Understanding Inside Bar Strategy

What is an Internal Bar Candlestick Pattern?

An inside bar is a two-candlestick candlestick pattern that occurs when the high and low range of a candle is confined within the high and low range of the previous (or previous) candle.

Visually, the pattern formation appears as if a smaller candle is engulfed within the body of the previous candle. Typically, this pattern represents a temporary equilibrium in the market and indicates indecision or consolidation within traders.

The internal bar formed shows that the price cannot break above or below the previous candle range. This confirms that neither bullish nor bearish forces dominate during the price movement.

How to identify the inner bar?

To identify an inside bar, find two candles and ensure that the high and low range of the second candle is completely within the high and low range of the previous candle. You can see right inside if subsequent candles meet the criteria.

The inner bar is made up of smaller candlesticks called “sub” candles. The child candle is completely engulfed by the previous candlestick, known as the “mother” candle. The high and low prices of the child candle must be within the high and low prices of the mother candle.

Market relationship with Inside Bar

• When an inside bar forms in a strong trending market, it means there is a brief pause in the trend before the price reverses back into the trend.
• A sign of a price reversal may appear when an internal bar forms near a major support or resistance level.

Types of Inner Bar Candles

Inside the bar with a small range

It is a standard inside bar with a smaller inside bar range compared to the existing candle, that is, the mother candle. This pattern formation indicates the presence of indecision or low volatility in the security.

Inside the bar with a wide range

In this type, the inside bar range is large but smaller than the mother candle range. A large body inside a bar within a mother candle indicates the strength of a reversal, which can indicate the strength of a reversal based on the closing price of the candle. Bullish reversal or bearish reversal

A large range inside a bar with a small body indicates indecision in the security.

Several interior bars

It is a type of inside bar pattern where two or more inside bars are formed together, indicating that the security has low volatility, which means that the price movement is weak. But sometimes it can be a sign that there could be a bigger move in the market.

Internal Bar Candlestick Strategy

There are many different strategies for using internal bars. Discover new items or manage existing locations.

The most common strategies are:

• Inside Bar Breakout
• Inside Bar Inversion
• Inside Bar Trend Trading

Inside Bar Breakout

The first key to trading inside bars with a breakout strategy is to identify a strong trend, either an uptrend or a downtrend. When the price is in a strong downtrend and consistently making new lows, the formation of an inside bar indicates a pause in price action that may see some profit booking.

Therefore, you can trade this position by entering a sell position when the price falls below the inside bar pattern. A stop loss for a position can be the highest level of a pattern formation. In a strong uptrend hitting new highs, the formation of an inside bar indicates a pause in price action that could see some profit booking.

Entry occurs when the price breaks above the high point of the internal bar pattern. The stop loss for a position may be the lowest of the pattern formation.

Inside bar breakout strategies are not recommended in sideways markets. This is because the sideways condition existing in a security indicates the indecision of a bearish or bullish trend.

Inside Bar Inversion

An inside bar reversal strategy is where an inside bar forms at a major support or resistance level as a signal for a reversal. For example, when the price approaches a support level, you know that support level is a level where demand for that security is likely to be high or buyers are likely to be willing to take a long position.

If an inside bar forms at the support line, it could be a sign of a price reversal. Entry will be above the closing price of the inside bar formation. Stop losses can be placed at support levels.

When price action is near resistance and an internal bar pattern is formed, it indicates a reversal signal. Entering a short position may involve securities. The entry price is lower than the closing price of the inside bar configuration. You can set a stop loss at the resistance line.

Inside Bar Trend Trading

In this strategy, internal bar formations help identify the direction of the larger trend. Let’s combine moving averages and internal bar pattern formation.

You can enter a buy position when the price closes above the high point of the inside bar pattern. The stop loss becomes the moving average line and can be tracked along with the MA line if the price starts to move in your favor.

When the price of a security is below the moving average, the formation of an internal bar at the resistance line of the moving average indicates a further downtrend.

If the price closes below the low of the inside bar pattern, you can enter a sell position. The stop loss will be the moving average.

best time frame

Internal bar patterns can be formed and identified on any time range chart, but internal bars on higher time ranges are more stable and significant than internal bars on lower time ranges. For example, the formation of an inside bar on a one-minute chart indicates indecision for one minute. When an internal bar forms on a daily chart, it indicates that neither bulls nor bears can dominate the market throughout the day. Traders can choose relevant time frames for various market setups, from intraday setups to position setups.

conclusion

From learning the Inside Bar strategy above, it is clear that it utilizes patterns in different market situations to gain valuable insights. With various types of internal bar patterns, small range internal bar breakouts are preferred. Because the same reversal defines a tight stop loss. Where and how patterns form is important in analyzing price movements because patterns indicate indecision. As always, learn patterns and backtest to make them easier to identify with good risk management.

Written by Deepak M

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