Together with Fakey, Pin Bar, and Inside Bar candle, they form the three most powerful basic Japanese candlesticks of the price action school. The Inside Bar model is not too complicated, easy to read, and highly reliable. Therefore, this is a Japanese candlestick pattern that many traders trust and apply in trading. Join Forex Trading to learn details about this model right below.
What is an Inside Bar candle?
Inside Bar is understood as being inside. The basic Inside Bar Japanese candlestick pattern will be composed of 2 candles. The first candle is called the Mother Bar. The second candle is the inside candle – Inside Bar. Among them, the Mother candle has a large size, a long body, and completely covers the inside candle. Therefore, the name “candle inside a candle” comes from the structure of this set of candles.
Characteristics and meaning of the Inside Bar candle pattern
For investors who trade according to price action, the Inside Bar model is considered an ideal model for market analysis. To trade effectively, traders need to clearly understand its characteristics and meanings:
Inside Bar basic Japanese candlestick characteristics
- The pattern is made up of 2 candles. The mother candle must be large enough to hold the entire candle inside. That means the Inside Bar candle must have a lower high and higher low than the high and low of the Mother candle.
- The states of the Mother candlestick and the Inside Bar must be opposite to each other. If the Mother candle is a green bullish candle, the Inside Bar will be a red bearish candle and vice versa.
- The pattern often appears after the market experiences a large volatile trend and enters a sideway period. In addition, in some special cases, it can appear at key support and resistance levels.
What is the meaning of the Inside Bar candle pattern?
- Inside Bar gives traders both signals: Market continuation signals and reversal signals. However, most traders confirm that this pattern gives more accurate continuation signals.
- The model can help traders identify which price zones have the lowest risk. That is also the point for traders to enter or close orders.
- The Inside Bar pattern signals that the market is in a period of struggle or accumulation. The top of the inner candle is high, and the bottom of the inside candle is low compared to the top and bottom of the Mother candle.
See more: Read candlestick charts: Basic & advanced material
4 basic Inside Bar candle patterns
In addition to the basic pattern, the Inside Bar also has 4 different variations:
- Multiple candles: This pattern can consist of 3 or 4 candles or more, the most common is 3 candles. The first candle is Mother – Mother candle. The next two candles are both clear candles. The colors of the candles may be the same or different. However, the condition is that the 2 inner candles must be completely inside the mother candle.
- Nested: This pattern is made up of at least 3 candles. In particular, the following candle is completely covered by the previous candle. That is, candle 1 is the mother candle of candle 2 and candle 2 is the mother candle of candle 3. This is a signal that the market is accumulating according to the rules. Prices are being compressed and there may be a fluctuation to push prices up or reverse.
- Fakey Inside Bar: This pattern consists of a pair of mother candles – inside candles, combined with a false breakout. Specifically, after the price breaks out of the Inside Bar pattern, it reverses in the opposite direction. However, that was just a fake reversal. The next candle shows the same trend as the Inside Bar candle. Many investors fall into this false trap and place orders with heavy losses.
- Inside Bar – Pin Bar combination: This pattern is characterized by the fact that there will be a Pin Bar candle surrounded by the mother candle in front. This combination model gives a reversal signal. It appears during the period when the market is accumulating and preparing to break out into a new trend.
With each model, traders will also have different how to read Japanese candlesticks. For new investors, priority should be given to mastering basic trading patterns before moving on to learn in-depth Inside Bar patterns.
2 most effective trading strategies with Inside Bar
It is not too difficult for a new trader to trade with Inside Bar. As mentioned, this pattern can signal two trends. Therefore, trading according to this model also includes 2 ways:
Trading the Inside Bar candle continues the trend
Depending on whether the market is in an uptrend or downtrend, traders will have a corresponding way to enter orders:
In a downtrend:
- Place a Sell Stop order at the bottom of the inside candle. Or you can place a Sell order after the next bearish candlestick is established.
- Stop loss is placed 2-5 pips from the top of the Mother candle
- The ideal R: R ratio is 1:2
In an uptrend:
- Enter a Buy Stop order at the highest peak of the Mother Bar candlestick. Or enter a Buy order after the third candle appears, creating a peak higher than the peak of the Mother candle.
- Stop Loss is placed 2 – 5 pips from the bottom of the Mother candle
- The ideal R: R ratio is 1:2
When more Inside Bar patterns appear in a clear trend, this shows that the continued trading signal is clearer.
Trade Inside Bar candle in case of trend reversal
In this case, traders should pay attention to see if the pattern is formed at an important price area or not. 2 cases in the Inside Bar give a reversal trading signal:
- If the candlestick appears at an important support zone: Forecasting a bullish reversal trend.
- If the candlestick appears at an important resistance area: Forecast a downward trend reversal. At the same time, the price must be retested before trading can proceed.
- Bearish reversal: Open a Sell order. Place Stop Loss at the top of the Mother candlestick.
- Uptrend reversal: Open a Buy order. Place Stop Loss at the bottom of the Mother candlestick.
- The ideal R: R ratio is 1:2 or 1:3
See more: Prestige Broker XTB: Elevate position of invest player
Trader’s note when trading with Inside Bar candle
To trade successfully with Inside Bar, traders should note:
- Choosing a time frame from H4 or higher will make it easier to identify patterns and trade more effectively.
- When trading with multi-candlestick patterns, traders should combine other indicators. The purpose is to confirm that the market’s long-term accumulation is correct.
- Prioritize ongoing transactions. Reversal trading is only for experienced traders. At the same time, you must be proficient in trading with many Japanese candlestick patterns.
- The Stop Loss point is set quite close to the Entry point (order entry point). This is considered an advantage of the model and it can help traders minimize the risk of loss. However, in some variant cases, it will limit your profits. Therefore, if you are more adventurous, you can move the Stop Loss point up or down further.
- Be careful with the Fakey model – fake breakout. That could be the reason why you burn capital. Usually, false breakouts are caused by “sharks” manipulating prices. This affects the psychology of investors who want to take profits quickly. In any case, consider the signals very carefully.
Conclude
Forex Trading has helped you learn what an Inside Bar candle is and how to trade effectively with this model. Without too much experience, you can still read trends and find opportunities. Don’t forget to check out more content about our shooting star candle. This is also a special Japanese candlestick pattern in forex technical analysis.
FAQs
Why is the Inside Bar pattern called a candle within a candle?
Because the pattern is created with a pair of candles, the second candle is completely included in the price of the first candle.
Why is trading Inside Bar following a trend reversal not recommended?
Because a false breakout signal may appear, causing traders to fall into the trap and lose money.
Do the candles in the Inside Bar have to be in opposite directions?
Are not! With variant models, the candles can be the same color or different colors.
