The inside bar is formed on any time frame, from the 1-minute charts to as high as 1 month charts. Still, the meaning remains the same. Not all inside bars work out and traders need to pay attention to the previous price action. An inside bar that forms after a strong upward or downward price action can most often signal a retracement in prices at the very least on an upside breakout of the inside bar, or could also signal a continuation of the previous trend on the downside breakout.

The Inside Bar Indicator settings are very simple and have only one option, which is to set the number of previous bars. The default value is 4.

What Is An Inside Bar Pattern?

What this setting means is that the indicator looks for the number of inside bars to be formed. If you set a value to 1, it will look for only one inside bar. If the value is changed to 4, then the indicator specifically looks for 4 inside bars to be formed. Once the inside bar is added to the charts, you will see a comment on the top left corner of the screen, which shows you if an inside bar meeting the requirements is formed or not, along with a timestamp of the session.

After the breakout of the inside bar, the comment remains until a new inside bar pattern is formed.

Initial use of the Inside Bar Indicator shows that there are some big drawbacks. For example, having the option to plot horizontal lines on the range of the inside bar would in fact be a great way for traders to visually watch the levels and can be helpful to quickly set the stops and entry levels. The lack of any popup or sound alerts means that traders have no clue when an inside bar is formed, which is one of the biggest drawbacks of the indicator. In this manner, the inside bar candle should have a higher low and a lower high than the previous candle on the chart.

The Inside Bar is fairly easy to spot on the chart, but using an Inside Bar indicator can assist the trader in quickly finding these patterns on their price chart as well. Since the inside candle has a lower high and a higher low than the previous candlestick on the chart, this indicates that the currency pair is consolidating. Why is it consolidating? It is consolidating because the bulls cannot manage to create a higher high and at the same time the bears fail to create a lower low. Since the Inside candle on the chart is a sign of a consolidating market, we can draw a horizontal support and resistance level around this range in anticipation of a future breakout.

When the price exits the inside bar range, we expect that the price action will continue to move in the direction of the inside bar breakout. So as an informed price action trader, you should be looking for the break of the inside bar, which would provide a tradeable opportunity in the direction of the break. The inside bar formation can be traded in a myriad of ways. What is most important is that the inside bar trading setup must adhere to pre-defined rules that the trader sets up per his own trading plan. We will discuss some examples of how a trader can approach setting up a trade when they see this pattern on their chart.

When the price action completes an inside candle on the chart, you should mark the low and high of the Inside Bar consolidation range. These two levels are used to trigger of a potential trade.

In simple terms, if the price action interrupts the range upwards, then you should go long. If the price action breaks the range downwards, then you should trade the short side.

The usage of a stop loss order is recommended for any Forex trading strategy. The inside bar trading system is no different. You should always put a stop loss when trading inside candles. But where? In other words, if the inside range gets broken upwards, you can buy the Forex pair and place a stop loss order right below the lower candlewick of the inside candle. The same is in force for bearish breakout of the inside range, but in the opposite direction.

In this case you could sell the Forex pair and you put a stop loss right above the upper candlewick of the inside bar. Projecting the potential move with Inside Bar Breakouts can be challenging. Often Inside Bar trades can lead to a prolonged impulse move after the breakout, so employing a trailing stop after price has moved in your favor is a smart trade management strategy. Along with this, I typically like to use a fixed Take Profit target at 1. In this manner, if the stop loss is 80 pips from the entry, then the minimum target would be located at pips distance.

The blue circle on the price graph above shows an inside bar candlestick pattern. See that the highest and the lowest points of the small bullish candle are fully contained within the previous bearish candle. This confirms the inside bar pattern on the chart. The black horizontal lines on the image define the inside bar range — the high and the low of the pattern. When you spot a breakout through one of these two levels, then that would give you a signal in the direction of the breakout.

In our case the price action breaks the inside range in bullish direction. Aggressive breakout traders would consider buying when the price reaches a few pips above the inside candle high. I would not venture to open positions solely on the signals of only this indicator.

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In the upper left corner of the chart, the indicator reflects information about price tags for entering and exiting trading positions arrow number 2 on the chart. As you can see, the indicator settings are very flexible, each setting item contains a description of the setting, which simplifies the work with the settings. In addition, the ACB Inside Bar indicator is equipped with an alert system for detecting an inside bar pattern. It contains Email, PopUp and phone notifications, which work quite correctly. You can turn off the not needed notifications in the indicator settings.

I would recommend using both this indicator and the inside bar setup, exclusively on the older timeframes — not lower than H4, but better the daily and weekly timeframes. In my opinion, the inside bar setup is interesting for technical analysis not only in itself, but also because the formation of an inside bar on the chart very often leads to the formation of a technical figure triangle , which is a much stronger signal for opening trading positions with low risks.