Is the inside bar a good indicator of price action?

In price action terms the inside bar is closely related, and many traders ignore these formations – or ‘lack of formation’ – and instead wait around for a more actionable signal of some sort. But, the reality is these can be powerful indicators when they show up and we’ll look at that more deeply in this installment.

What is a “inside bar” pattern?

An “inside bar” pattern is atwo-bar price action trading strategy in which the inside bar is smaller and within the high to low range of the prior bar, i.e. the high is lower than the previous bar’s high, and the low is higher than the previous bar’s low. Its relative position can be at the top, the middle or the bottom of the prior bar.

What is the difference between a pin bar and inside bar?

A pin bar is a price action strategy that shows rejection of price and indicates a potential reversal is imminent. An inside bar is a price action strategy that shows consolidation and that a potential breakout is imminent. These two signals, when combined, result in either a ‘pin bar combo’ pattern or an ‘inside bar – pin bar combo’ pattern.

What does an inside bar look like?

Before we get into actual trading strategies, let's see at what an Inside Bar looks like, what it can tell us, and why it happens. An Inside Bar (or candle) is a 2-bar pattern where a bar is inside the total price action of the previous bar. In other words, the Inside Bar has a higher low and lower high than the previous bar.