Inside Bar

What Is an Inside Bar?

An inside bar is a candle whose high is lower than the previous candle's high and whose low is higher than the previous candle's low. The entire range of the inside bar is contained within the "mother bar" (the preceding candle). This makes it a visual representation of a pause or Consolidation within a single candle.

What It Signals

The inside bar shows that volatility has contracted. After a large move (the mother bar), the market pauses to decide its next direction. This compression often precedes a Breakout.

On EUR/USD, an inside bar after a strong bullish mother bar at a key level suggests the market is coiling before the next move. The direction of the break out of the inside bar's range gives the signal.

How to Trade Inside Bars

Place a buy stop above the inside bar's high and a sell stop below its low. Whichever gets triggered first is your trade. The stop loss goes on the opposite side of the inside bar. In a trending market, you can bias the direction: during an Uptrend, only take the long break; during a Downtrend, only take the short break.

The inside bar is related to the Harami candlestick pattern. The harami requires the second candle's body to be inside the first candle's body. The inside bar is stricter: the entire candle (including wicks) must be inside the prior candle's range. Multiple consecutive inside bars indicate extreme compression and can precede powerful moves.