In trading, we recognize various patterns of price movement which indirectly indicate where the next price trend is going. This price movement pattern often occurs repeatedly in a period of time so that it can be used by traders/investors to be taken into consideration in making decisions.
Inside bars are one type of price movement pattern.
What is an inside bar and what does it mean in the world of trading? Mark, see the explanation below:
What is the Inside Bar Pattern?
The inside bar pattern is a price pattern consisting of two candles. The first large candle is called the mother bar while the second smaller candle is called the inside bar. The highs and lows of the second candle are neither higher nor lower than the first.
The inside bar pattern can appear in the time frame and one mother bar can not only be followed by one inside bar, but several bars at once. This pattern also indicates that the bulls (buyers) and bears (sellers) are equally strong so that market conditions are indecisive. Therefore, it is important for forex traders to know and understand this pattern.
Types of Inside Bar Patterns
1. Bullish inside bar
The bullish inside bar consists of three candles arranged as follows:
The first candle is a bearish candle. The second candle is a bullish candle but is still within the range of the highest and lowest prices of the first candle. The third candle is a bullish candle that has successfully penetrated the highest price point of the first candle.
2. Bearish inside bar
The components of this pattern are arranged in the opposite direction from the bullish inside bar, namely:
The first candle is a bullish candle. The second candle is a bearish candle but still coverage of the highest and lowest prices of the first candle. The third candle is a bearish candle that managed to break the lowest price point (support line) of the first candle.
Both bearish and bullish inside bars are patterns that indicate the potential for a price reversal (reversal pattern) to occur.
1. Multi inside bar
Multi inside bar occurs when one mother bar is followed by several inside bars at once. This indicates that the market is consolidating with no clear trend direction.
2. Inside bar winding
Inside bar twists can occur if the first and second candles are different colors (red or green), but the third candle has the same color as the first candle. This pattern indicates that the price which was initially still consolidating began to show a new price trend.
3. Fake inside bars
This pattern occurs if the movement of the third candle can penetrate the highest or lowest price of the first candle and the direction of movement is different from the previous inside bar. So, if the candle shows a bullish inside bar, the third candle actually moves downwards, and vice versa.
4. Mother bar with pin bar
A pin bar is a candlestick that has a tail that is longer than its body. This type can appear after the mother bar and act as a pin bar as long as the size of the candlestick body is still within the scope of the mother bar.
Pin bars generally indicate a trend reversal so if there is this candle after the mother bar, most likely the trend that occurred earlier will reverse.
Trading Strategy Using Inside Bar
1. Wait for the breakout
Inside bars generally indicate that the market is experiencing consolidation or uncertainty, so traders should wait for a breakout that manages to penetrate the highest or lowest price point of the mother bar.
Simply put, a buy signal occurs when the price of the third candle manages to be higher than the price point of the first candle. Conversely, a sell signal occurs when the price of the third candle is lower than the first candle. You can also buy if there is a true breakout on the support line, it’s just that the type of transaction that is suitable is short selling and not long.
Why wait for the breakout? Because it is possible that what happens is a fake inside bar or multi inside bars. As stated above, multi inside bars indicate that the price consolidation phase will continue for much longer.
2. Confirm with technical indicators
Market conditions that are currently consolidating are often difficult to predict. But that does not mean, you stay silent. You can use various additional technical indicators such as relative strength index, ADX or moving average convergence divergence (MACD) to determine overbought and oversold conditions in the market so that when there is a signal that one team (bull vs bear) is more dominant, you will know first. before the breakout.
This means, the breakout only acts as a confirmation of price movements. If you believe in the results of the analysis, you can open a position before the breakout occurs, however, if you are not sure you can wait for a breakout first.
Inside Bar Advantages and Disadvantages
The first advantage of the inside bar is that this pattern can occur in any time frame. But generally, trading using the inside bar is recommended for time frames above 1 day. Because, often there is a lot of “noise” or things that interfere with the accuracy of the signal when using this pattern for scalping or trading with a shorter timeframe.
The second advantage is that this pattern is easily identified by even new traders because of its simple shape.
The disadvantage of the inside bar pattern is that this pattern can show both a reversal pattern and a continuation pattern at the same time. In addition, there is also a false inside bar that can trap traders if the trader is not patient and observant in making decisions.
Because of this deficiency, the inside bar pattern is generally only used by traders as a one of the many trading strategies they developed. You can pair this pattern with the oscillator indicator above, with the Fibonacci retracement or with other technical indicators.
Inside bar is a price pattern consisting of one large candle and one or more small candles. The size of the small candle is not higher or lower than the previous large candle. This price pattern indicates a short-term price consolidation in the market so traders are advised to wait for a breakout before opening a position.