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Inside Bars For Reversals and Continuations Strategy

  • Most candlestick trading strategies are either suited for trend reversal or trend continuation. However, inside bars are those rare gems that can signal both, depending on where in the chart they form.
  • However, inside bars are those rare gems that can signal both, depending on where in the chart they form. An inside bar is like the opposite of an engulfing bar. Its high and low are shorter than the previous bar and it sits inside the previous bar’s high and low.
  • However, keep in mind that trading these means you need to wait for the asset’s price to break above or below the high or low of the previous (longer) bar’s high and low, respectively.
  • In figure, we can see that after the large bullish bar, two smaller bars formed within the high and low of the previous large bar.
  • Inside bars like these can range from a single bar to several and it really does not matter if these inside bars are bullish or bearish. As long as these smaller bars do not cross the high or low of the larger bar, this would be considered as a valid inside bar pattern.
  • Once you see price breaking above the high of the larger bar, which is often called a Mother bar, it would signal a start of a momentum trade. 
  • However, if you find these inside bar patterns during a strong trend, it can also signal trend continuation. In either case, you should set your stop loss above or below the mother bar.

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