An inside bar or inside candle is a pattern made up of a minimum 2 candles. The first candle is called the “Mother candle(MB)”. The second candle is referred to the inside bar. For the inside bar to be correct we need to see the range of the candle be completely inside that of the Mother candle. Matching lows and highs are acceptable, however the inside bars range must not be outside of the housing candle by even 1 point.
An example of an inside bar is below.
We can have INSIDE BAR formation with multiple insider candles in a “mother candle”. Check this :
So now we know how to recognize INSIDE BAR FOMATION on chart.
Next is “when to trade this formation?”
Answer is : ONLY IN A STRONG TREND
Find a strong uptrend or downtrend with smooth higher high-higher low or lower high-lower low formations & look for INSIDE BAR formation at the end of every rise or fall within the trend.In short, this formation is a trend-continuation trading formation. To trade BREAKOUTS in a trend,i love this formation to hunt.
Next is where should be stoploss & target placement once we find this formation after a clean up/down trend.I’ll explain this part with a pic here :
For BUYING :
For SELLING/SHORTING :
1) Find a strong trend
2) Find the pattern on the low/high of the swing(upmove/downmove)
3) BUY above Mother bar’s high with SL of Inside bar’s low
or SELL below Mother bar’s low with SL of Inside bar’s high
4) Target should be the upcoming key support / resistance above or below INSIDER CANDLE box.
Now, lets jump into some charts & check how this formation plays out in real world .
NSE-stock : CAIRN INDIA LTD
I’ve marked the INSIDE BAR boxes in GREEN. So here we go with our 4 conditions to hunt a trade:
1) we got strong downtrend making lower low lower highs
2)All green boxes(INSIDE BAR formations) are formed at the end of a swing down
3)SELL entry are placed below MB(mother bar)’s low with a sl of inside bar’s high
4)Target is next key supports below INSIDE BAR formations
Here is another example on the index. I strongly recommend trading inside bar formation after a good breakout like here in the pic, price closed above key resistance 12140 with strongly bullish momentum which confirms the breakout & then formed an inside bar formation.After that you can see how price has just flown away.
Now check out the same setup in GOLD futures traded in india. In a strong downtrend, INSIDE BAR formations are traded.
NSE stock – BHARATFORGE :
In this stock, “INSIDE BAR” FORMATION has offered so many chances to trade the entire uptrend. Check :
Since i trade US market too, sharing one of my recent INSIDE BAR formation trade, This trade comes up with more power in it as we got the formation after a key resistance level breakout.
Most importantly, MONEY-MANAGEMENT is the key to ultimate success in trading business. No matter what pattern/strategy you trade,you must plan your money-management strategy like : how much to risk per trade,which timeframe suits your trading strategy & all ( will cover all these topics related to money-management on another article later ). Even a strategy with 95% accuracy will fail if not followed with proper money-management rules.So this will be my request to all my readers, learn & educate yourself about money-management first instead of educating one regarding a technique to trade.
Finally, INSIDE BAR is one of the setups i use as a trend continution signal to trade a strong trend.However, Finding a trend is the key behind trading this formation.There are some filteration techniques/rules i use too while trading this formation which are broadly discussed in my training course HERE – like “when not to trade this setup when you are still in a strong trend,how to revise stoploss while trading this formation,choosing more accurate target area,extending target area based on momentum after break of mother candle,trading inside bar with breakout move etc”.
Hope you enjoyed the article & i was able to teach you some strategy to trade the market. I will appreciate if you share your feedback on this article & also feel free to mail me(firstname.lastname@example.org) if you have any doubts to understand the concept i discussed here.