On a smaller time frame such as a 1 hour chart, a daily chart inside bar will sometimes look like a triangle pattern. Since the inside bar setup is by its very nature a potential breakout signal, I 240 fx forex trading system enter an inside bar on a breakout of the mother bar high or low. If I am looking to buy, I will place a buy on stop entry just above the mother bar high, and if I am looking to sell I will place a sell on stop entry just below the mother bar low.
There are different variations, but the way I determine an inside bar setup is if the inside bar is contained within the range of the mother bar from high to low. That is to say, I use the mother bar high and low to define the range that the inside bar can be contained within, others might use only the real body of the mother candle as the determining range, but I do not teach or trade it that way. In the example image below, we can see the anatomy of an inside bar setup. Note that the inside bar is fully contained within the range of the high and low of the mother bar.
You can have multiple inside bars within the range of one mother bar. What does an inside bar mean? An inside bar indicates a time of indecision or consolidation. They often provide a low-risk place to enter a trade or a logical exit point. In the image you will see next, we see an example of inside bars that formed as a continuation signals and then one that formed as a turning point signal.
While they can be used in both scenarios, inside bars as continuation signals are more reliable and easier for beginning traders to learn. First, you will see that we have inside bars that acted as continuation signals, that is they resulted in a continuation of the previous momentum before their formation. These continuation inside bars often result in nice breakouts in-line with the current trend and near-term momentum. We can also see a good example of an inside bar that acted as a reversal or turning point signal. There are basically two different stop loss placements for inside bar setups, and you will have to use some discretion in determining the best one for each inside bar you trade. The next stop placement is typically used on inside bars with larger mother bars.