An Inside Bar develops during a strong downtrend when the trading range is completely within the high and low of the previous bar.
This suggests the pressure between buyers and sellers is becoming more evenly balanced.
Bears might be weakening in power while bulls might be increasing in power.
What does an Inside Bar look like?
An Inside Bar must stay completely WITHIN the range of the bar immediately before it.
This means that the second bar must have a lower high and a higher low than the first bar.
What does an Inside Bar mean?
An Inside Bar potentially means that the price action recently dominated by the sellers is now weakening.
Since price volatility has subsided and the price stayed completely within the range of the previous bar, either buying pressure has increased or selling pressure has decreased.
This “pause” in price action does not necessarily signal any clear strength from either buyers or sellers.
Sellers could be near exhaustion and the price may start to move higher OR they are merely taking a breather before pushing the price lower (and making a lower low).
How to trade an Inside Bar?
- Place stop orders to trade a breakout in either direction: a buy stop order above its high, and a sell stop order below its low. Once one order is triggered, cancel the other order.
- Place only one order (buy or sell) on a breakout in the direction of the primary trend.