Inside Bar: A Pause, Not a Prediction
An inside bar is a candle whose high is below the previous candle's high and whose low is above the previous candle's low, so its whole range sits inside the bar before it. It records a pause in the range, not a direction.
Covered on this page: TradingView.
How it works
An inside bar is defined entirely by the bar before it. Its high is lower than the previous high and its low is higher than the previous low, so the second bar’s whole range fits inside the first. Traders often call the first bar the mother bar.
The colors do not matter. Either bar can close up or down. What qualifies the pattern is the two extremes, not the bodies, which is the first thing that separates it from engulfing patterns.
What it records is contraction. For one bar, buyers could not push past the previous high and sellers could not push past the previous low. That is a smaller range, and a smaller range is information about volatility, not about direction.
The two levels are the point. The prior bar’s high and low are prices the market has already refused to leave. A close beyond either one is the event traders actually act on, and the inside bar is simply the pause that makes those two levels easy to see.
Reading one in context
Where it forms changes what it means. An inside bar after a long run is a pause inside a trend. The same shape in the middle of a sideways market is one more small bar among many, and it marks nothing that the range itself did not already show.
The size of the prior bar decides the trade before the trade exists. A narrow prior bar gives close levels and a tight stop. A very wide one, often the bar of a news release, gives levels so far apart that the stop consumes most of the move you were hoping for.
Several inside bars in a row are common. Each one narrows the range further. That does not make a break more likely to hold; it only moves the two levels closer together.
A worked example
Take a hypothetical prior bar with a high of $102.40 and a low of $100.80, a range of $1.60. The next bar trades entirely between those two prices, so it is an inside bar.
A trader who wants the upside break places a buy stop at $102.45, just above the prior high, and a protective stop at $100.75, just below the prior low. The distance between them is $1.70 per share.
With $200 of risk per trade, the position is $200 ÷ $1.70 = 117.6, so 117 shares. Rounding down keeps the loss at or under the amount set: 117 × $1.70 = $198.90.
Now make the prior bar twice as wide. With a $3.20 range and the same $0.05 buffers, the distance is $3.30, and the same $200 buys 60 shares. The pattern looks identical on the chart; the position is half the size, because the stop had to move.
In practice
Decide in advance which side you will trade. An order on both sides turns every break into a trade, including the false ones. Many traders take only the break that agrees with the slower chart’s direction.
Wait for the break, then check the close. A bar that pokes past the prior high and closes back inside has not broken anything. Whether to act on the touch or the close is a rule to write down before the session, not a judgment to make while the bar is still open.
Account for the gap. Overnight, price can open beyond a level with nothing traded in between, so a buy stop fills at the open rather than at the level, and a protective stop can fill well past it.
Keep the record honest. Log the inside bars you skipped as well as the ones you traded. A record of only the trades taken is filtered by the same judgment you are trying to test, and it will make the pattern look better than it is.
What an inside bar is not
It is not a reversal pattern. It forms inside a trend as often as at the end of one.
It is not a forecast of direction. The pattern is symmetrical: the same bar supports a break either way, which is exactly why the break, not the bar, is the signal.
It is not an edge on its own. Any claim for it has to be tested on the instrument and timeframe you trade, against the plain rate at which bars in that market break their prior range at all.
How this connects
Every candlestick pattern is a statement about highs, lows, opens and closes, and the candlestick patterns page covers the family. The inside bar is the one defined purely by range.
The trade it produces is a breakout of a small, well-defined range, and it inherits every weakness of breakouts, starting with the false breakout.
The stop and the size come from the same distance, which is why stop-loss placement and position sizing decide whether the pattern is tradable at all on a given day.
When it fails
The most common failure is the break that does not follow through. Price clears the prior high, fills the buy stop, and closes back inside the range. The trade is stopped out on the far side, and the full distance was the loss.
The second is the wide prior bar. When the bar before it is a news bar, the levels are so far apart that the stop is larger than the move a normal session produces. The pattern is valid and the trade is not worth taking.
A third is trading both directions. With orders on both sides, a sweep of one level followed by a move to the other fills both and loses twice.
A fourth is the gap. A level skipped overnight fills at the open, so the loss can exceed the distance the position was sized on.
And a fifth is the busy chart. On a low timeframe inside bars appear constantly, and a rule that fires on every one of them trades the noise it was meant to filter out.
The original data
Only 3 of the 24,971 unique videos in this site’s search study have “inside bar” in the title, from 3 different channels. The median of the three is 5,259 views and the most watched reached 108,224. Three is too small a sample to say anything about how the topic performs; what it shows is how rarely it is the subject of a whole video.
For comparison, 59 titles name engulfing patterns (median 4,117 views, 53 channels), 256 name candlestick patterns generally (median 4,809) and 395 name breakouts (median 6,187). The inside bar is mostly taught as one pattern inside a broader lesson, which is why the rules for trading it, the side, the close and the size, are so often left out.
Related
The candlestick patterns page places this one among the others, and the breakout page covers the trade it produces. When the break fails, false breakout explains what happened. The stop and the size come from stop-loss placement and position sizing.
I treat an inside bar as a pause, not a signal. I only act on a break of the bar before it, and I size from that bar’s full range, because that is where the stop has to go. If the range is too wide for the risk I set, I skip it.
— Michael Whitman
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