Today’s lesson is an introduction to the inside bar signal and how to trade it. It’s really one of my favorite patterns to trade, especially on the daily chart time frame. Why, you ask?
It’s simple. The inside bar pattern shows a pause or indecision in the market, and depending on the surrounding price context it formed within, this provides us with an extremely valuable clue about what a market is about to do next.
The inside bar is yet another “tool” in your price action toolbox that will add to your trading strategy which when mastered will help improve your chances of long-term trading success.
Let’s get started with some introductory concepts and theory on inside bars…
What is An Inside Bar?
An inside bar pattern is a multi-bar pattern that consists of a “mother bar” which is the first bar in the pattern, followed by the inside bar. An inside bar pattern can sometimes have multiple inside bars within the same mother bar.
Here is what standard inside bars look like:
As you can see by the image below, inside bars can form exactly in the middle of the mother bar or close to either the high or low, there is not an EXACT way they have to look, just as long as they are contained within high to low distance of the mother bar
4 Variations of Standard Inside Bars
1. Double (multi) inside bar
The “double inside bar” consists of two inside bars within the structure of the mother bar. They are pretty common and often times you will even see 3, 4 or sometimes (rarer) even more inside bars within the same mother bar structure. These patterns signify a prolonged period of indecision in the market and they can come before very powerful breakout moves…
2. Coiling Inside Bars
Coiling inside bar patterns occur when 2 or more inside bars are “coiling” up tighter and tighter like a spring, within one another. Pay special attention when you see these because they mean the market is contracting and just like a spring wound up tighter and tighter, eventually it’s going to “release” and explode into a powerful move (in many cases).