The idea
An inside bar is a candle whose high is lower and whose low is higher than the candle before it, the mother bar. It is a pause: for one candle, neither side could push past the previous one's range.
Price action traders treat the pause as a coiled spring and trade whichever way it releases, usually preferring the direction of the trend: a close above the mother bar's high is a buy, a close below its low a short.
Watch it play out
Step by step
The rules
Setup
- An inside bar: its high under the mother bar's high and its low above the mother bar's low.
- Ideally in an existing trend.
Entry
- Buy on a close above the mother bar's high (in an uptrend), or short on a close below its low.
Stop-loss
- Under the inside bar's low, or the mother bar's low for more room.
Target
- 2R, or the next level.
Filters that help
- Inside bars on the daily chart carry more weight than on lower timeframes.
- Skip it when the mother bar is huge: the stop gets too wide.
Why it can work
A pause after a strong candle often means the market is absorbing the move before continuing. The pattern also gives a precise structure: a clear trigger (the mother bar's edge) and a clear stop (the other edge or the inside bar's low).
The pattern is also honest about risk: the whole mother bar is the area in question, so a break of its far side says plainly that the idea was wrong.
Worked example
A stock makes a large up candle from $103.90 to $106.90, then an inside bar between $105.10 and $106.50. The next candle closes at $107.20, above the mother bar's high: buy, with the stop under the inside bar at $105.00.
Risking $100, the $2.20 stop allows 45 shares. A 2R target sits at $111.60.
When it works, when it fails
Works best
As a continuation pattern in trends, on daily charts and in markets that move cleanly after a pause.
Struggles
In ranges, where inside bars are everywhere and breaks fail. A break of one side followed by a reversal through the other is common.
Common mistakes
- Trading inside bars against a strong trend.
- Entering on a touch of the mother bar's edge rather than a close.
- Using a 5-minute chart, where inside bars are mostly noise.
Variations
- Inside bar false break
- Trading the reversal when price breaks one side of the mother bar and closes back inside.
What the evidence says
Evidence: Popular, untestedWidely used, but no rigorous public testing. An idea to test yourself.
Inside bars are a staple of price action courses, but there is no rigorous public study of the breakout rules after costs. Academic tests of candlestick patterns in general have found little reliable value in large US stocks.
Treat it as a precise way to define an entry and a stop, and test whether it adds anything on your market.
Questions
- Which timeframe is best for inside bars?
- Daily and four-hour charts are the usual choice. On lower timeframes inside bars appear constantly and carry little meaning.
- What is a double inside bar?
- Two inside bars in a row inside the same mother bar. It shows an even tighter pause, and some traders treat its break as a stronger signal, with the same entry and stop rules.
- What is an inside bar?
- A candle whose whole range sits inside the previous candle's range: a lower high and a higher low.
- Is an inside bar bullish or bearish?
- Neither on its own. It is a pause; the break decides. Most traders favour breaks in the direction of the trend.
- Where should the stop go?
- Under the inside bar's low for a tighter stop, or under the mother bar's low for a safer one. The tighter stop gives better risk to reward and more stop-outs.