An inside bar is a price bar (candlestick or bar chart) pattern that forms when the high and low of a given bar are contained within the high and low of the previous bar. In other words, the price range of the current bar is entirely within the price range of the preceding bar.
The appearance of an inside bar pattern suggests a temporary consolidation or pause in the market’s price action. It indicates that buyers and sellers are in equilibrium, resulting in a narrower trading range compared to the previous bar. Inside bars can be observed on various timeframes, from intraday charts to longer-term charts.
Inside bars often indicate indecision and a potential buildup of energy in the market. Traders often pay attention to inside bars as they can signal future price movements. When an inside bar forms within a larger trend, traders will typically watch for a breakout in the direction of the prevailing trend.
Trading strategies involving inside bars typically revolve around waiting for a breakout of the high or low of the inside bar. Traders can initiate positions when the price breaks out of the inside bar’s range. Some traders may wait for a confirmation candle to occur after the breakout to validate the move.
It’s important to note that an inside bar formation alone does not guarantee a successful trade. Traders should consider other technical analysis tools, such as trend lines, support and resistance levels, or additional confirmation signals, to increase the probability of a profitable trade. Risk management techniques, such as setting stop-loss orders, should also be employed to manage potential losses.