A pin bar entry signal, in a trending market, can offer a very high-probability entry and a good risk to reward scenario. When trading pin bars, there are a few different entry options for traders. The first, and perhaps most popular, is entering the pin bar trade “at market”.

Traders see this as a bullish signal, positioning it as an entry point to capture further upward movement. A trend continuation is likely if the breakout aligns with the current trend, while a reversal may occur if the breakout moves against it. Understanding the components of an Inside Bar setup is essential for identifying high-quality trades. The first is the “Mother Bar,” which has a high and low that completely engulfs the second candle, called the “Inside Bar.” So, you go long when the price breaks above the highs of the Inside Bar. Then, traders would look to go short on the break of the Inside Bar.

• See that the highest and the lowest points of the small bullish candle are fully contained within the previous bearish candle.
• For instance, an ‘Inside Hammer’ is when the second bar is both an Inside Bar according to the selected definition and shaped like a ‘Hammer’.
• 2) The inside pin bar combo setup is simply a pin bar that’s also an inside bar.
• This signals even stronger consolidation, meaning that when a breakout finally happens, it could be more powerful.

Double Inside Bar Pattern

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• As you can see, previous support and resistance levels play an important role when determining whether an inside bar is worth trading.
• This strategy can be used to follow and trade with a trend or with reversals.
• So, as you can assume, there’s no one version of the inside bar pattern.

I will recommend you go through the previous article on the inside bar patterns to learn these inside bar strategies effectively. The price keeps squeezing tighter and tighter like a coiling spring getting ready to pop. Now let’s analyze how traders can manage entries and exits while using this specific strategy.

Example #2: Downtrend Inside Bar Setup – Bearish Inside Bar Pattern

But that’s okay because by the time you finish this lesson you will have a firm grasp of not only how to identify favorable inside bar setups, but how to trade them for a profit. Previous day’s range breaks predict session direction with 67% accuracy on YM — stop using them as reversal levels. This information is not trading advice and should be used for educational purposes only.

The accuracy of the Inside Bar pattern is influenced by the size of the Inside Bar relative to the Mother Bar. A smaller Inside Bar within the range of the Mother Bar generally indicates a higher probability of an accurate signal. Ideally, the Inside Bar should form within the upper or lower half of the Mother Bar.

This is because market context is incomplete without considering the accompanying volume and the market structure in which the setup appears. However, this doesn’t mean you should rely on multiple technical indicators, as that can be counterproductive. Instead, we recommend mastering price action, market structure, and volume analysis as the foundation of your trading strategy. Jumping between different technical indicators can lead to poorer trading decisions. Second, inside bars can offer well-defined and attractive risk-reward trade-offs.

Context is Key

Moreover, the pattern could be either a trend reversal or continuation chart pattern, depending on the context of the markets. It is also one of the most frequently seen patterns that appear regularly in any market condition. So, as you can assume, there’s no one version of the inside bar pattern.

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In other words, today’s high is lower than yesterday’s high, and today’s low is higher than yesterday’s low. The trendline and inside bar strategy is easy to spot and it has a high winning probability as compared to support/resistance. There are the following three inside bar trading strategies explained. The inside bar pattern differs from the NR4 pattern regarding the number of candlesticks involved. For those unfamiliar, NR4 was a pattern discovered by Tony Crabel that has similar characteristics to the inside bar.

The power of this formation is hidden in the consolidative character of the formation. Since the inside day candle is also the smallest of the last four daily sessions, this means that the range is relatively tight and it is likely to break out with a sharp reaction. When looking for these types of trades, you first want to identify a strong trend. You can use moving averages, a momentum indicator, or simply just look a the price action to see strength of the trend. The inside bars in the chart above formed on the GBPJPY daily chart in a choppy market. This sideways price action represents consolidation, which is what you want to avoid when evaluating an inside bar setup.

If an inside bar setup develops outside of those hours, then do not take the trade as the market is less likely to trend far enough to yield a positive risk to reward ratio. To do this, we will use one of the most popular technical indicators—specifically, an oscillator—the relative strength index (RSI). However, we will not use the RSI merely to indicate whether the asset is overbought or oversold; instead, we will leverage its ‘leading’ capability as a divergence tool. Simply put, a divergence occurs when the price and a technical indicator move in opposite directions.

Sarah brings a unique approach by combining creativity with clarity, transforming complex concepts into content that’s easy to grasp. If you want to capture a swing, then you can exit your trades before opposing pressure steps in. But the next thing you know, the market does a 180-degree reversal and collapse lower — inside bar trading strategy and you’re sitting in the red. Now, don’t worry about how to set your stop loss or trade management because we’ll cover that later.

However, the general rule is that the higher the time frame, the more reliable the candlestick formation becomes. For most traders, the daily chart is preferred, while others might opt for shorter time frames (for scalpers or day traders) or longer time frames (for position traders). The inside bar pattern features two successive candlesticks that typically indicate a market consolidation or uncertainty phase. Recognising this setup can benefit traders and analysts, as it offers clues about possible future price trends. In this article, we will examine various instances of this pattern on price charts and delve into how to interpret its signals for trading strategies.

putting it all together: your inside bar day trading plan

When you see this pattern, you should position yourself in the market to trade in the opposite direction to the one which you had previously placed. Also take note of the three blue arrows at the left side of the image, which shows that the previous three candles on the chart are actually bigger than the inside candle. Therefore, we confirm that the inside candle is also the narrowest range day of the last 4 daily sessions. Projecting the potential move with Inside Bar Breakouts can be challenging.

Trading Inside Bars in a Breakout

The high and low of the child candle should be within the high and low of the mother candle. An inside bar in consolidation won’t give us clear ‘directional bias’, which we must have to constitute an effective inside bar setup. An inside bar occurs when the entire price range (high to low) of a trading session is contained within the range of the previous session.