10 Price Action Bar Patterns You Must Know

Interpreting the results correctly is as essential as the backtesting process itself. Learn what to look for and how each factor plays into making informed adjustments to your strategy. 1 — the inside bar in the indecision zone that has been highlighted by the indicator.

Ranging Markets

But sometimes, after the breakout, the price again closes inside the key level. However, breaking the boundaries of an inside bar might only signal an expansion of the consolidation zone. Placing pending orders at the inside bar’s boundaries means the order will automatically trigger when the price reaches the breakout level. This approach enables traders to capture a potentially profitable position at the beginning of the move without constantly monitoring the market.

This pattern signifies a consolidation phase where the market takes a “pause,” often leading to a breakout once the price breaks above or below the Inside Bar. If the previous candle was a higher low and high, I am looking for a bearish trade and will place a sell-stop order below the low of the Inside Bar. If the previous candle were a lower high and low, I would place a buy-stop order above the Inside Bar.

How Reliable is the Inside Bar Pattern?

As the name implies, an inside bar forms inside of a large candle called a mother bar. It’s a pattern that forms after a large move in the market and represents a period of consolidation. This is why trading this pattern can be so profitable – you are essentially buying or selling a breakout, or continuation of the preceding trend. Inside bar trading offers ideal stop-loss positions and helps identify strong breakout levels.

1. As market volatility is always shifting, it helps to see multiple InSide Bars together because it is a strong sign that there will be big movement in the markets.
2. An InSide Bar is a candle that is essentially “covered” by the previous candle.
3. It had another impressive winning streak of 15 trades that bagged 17.62% in gains, erasing the 3.39% loss snagged during its longest losing streak of 3 trades.
4. This pattern can appear in both uptrends and downtrends, signifying that the trading range of the current candle is narrower than that of the preceding candle.
5. Remember that an inside bar represents consolidation after a large move.
6. Since inside bars are inherently smaller in relative size, they allow for entry and stop-loss points that are close to each other, particularly when compared to your target price.
7. Below is a great example of a bullish inside bar that formed on the USDCAD daily time frame.

This period of consolidation allowed the market to “reset”, or shake out profit takers and attract new buyers for the next leg up. This pattern tells the trader where there is low volatility within the markets. As market volatility is always shifting, it helps to see multiple InSide Bars together because it is a strong sign that there will be big movement in the markets.

When an inside bar develops, check the RSI oscillator to gauge whether there is underlying strength or weakness in the market. In the EURUSD example above, then the inside bar pattern appeared, the RSI value was at 40 exhibiting a weak price trend. You can modify these strategies too according to your temperament. But keep in mind that confluences are necessary to increase risk reward and winning ratio. The trendline and inside bar strategy is easy to spot and it has a high winning probability as compared to support/resistance.

Explore the Market

1. It signals an expansion of volatility rather than consolidation and can indicate strong buying or selling pressure.
2. An inside bar must stay completely within the range of the bar immediately before it.
3. A breakout of one of the extremums of an inside bar dispels doubts and directs a currency pair in this or that direction.
4. It forms when two consecutive candles (bars) stay entirely within the range of the previous candle.
5. If you have been trading for any length of time I’m sure you have heard this one many times.
6. A pin bar is a price action strategy that shows rejection of price and indicates a potential reversal is imminent.
7. However, the momentum starts to slow down after surpassing 18,630, as indicated by a bulge in the profile around 18,636 (2).

It’s crucial to exercise caution and be mindful of false signals that can occur. Traders try to adapt their trading strategies accordingly to improve their chances of success. To develop your own trading strategy with this pattern, you can open an FXOpen account.

So, you cannot trade every single inside bar in the same way, as you may not know if the trend will reverse or continue. Instead, it would be best to interpret the pattern differently on the market scenario and decide the next price direction. Still, the inside bar allows you to identify a pause in price action and a good market entry level before the next price movement. Furthermore, the inside bar may appear inside another chart pattern formation, such as the three inside-up pattern, where the first two candles are, in fact, inside bars.

The subsequent bullish pin bar makes a false breakout of the inside bar and support level. An Inside Bar pattern following a price breakout in the current trend provides the most reliable signals. This formation suggests the potential end of the current trend and a forthcoming market reversal.

MACD is a unique indicator that can be combined with the inside bar pattern. The MACD is a trend following tool and when you have a consolidation pattern like inside bar, the MACD can provide insight to the potential direction of the breakout. This inside bar strategy has been made by the combination of inside bar breakout and support/resistance breakout.

Fixing Profits

More often than not, a false breakout causes the market to change its direction. For example, a false breakout of a key resistance level often results in a steady price decrease. The combination of the inside bar and the pin bar does not differ.

As you may well know, markets spend inside bar trading strategy most of their time consolidating or ranging, so finding a favorable inside bar setup within a trending market can be a challenge. However, when you know what to look for, these setups can be quite profitable. The last step to using the Inside Bar pattern is to always place a stop-loss order. Since Inside Bars can either indicate a breakout or continuation signal, there is no guarantee that the market will move in the direction of your analysis/prediction.