What is Inside Candle Pattern? (Example and Strategies) Full Details Of This Inside Candle Stick Pattern .
What is Inside Candle Pattern? (Example and Strategies)
Today I will give you full details about inside candle and how to trade inside bar candle pattern on chart by using inside candle strategies.
So if you are new in stock market trading and want to learn inside candlestick Pattern then this post is for you.
Because today you will know about inside candle meaning, why are inside bars important, how to trade inside pattern, what is 15 minute inside candle strategy which indicator is suitable for inside candle trading.
So let’s know about what is inside candles–
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What is inside candle?
An inside candle is like a smaller candle hiding inside a bigger one. It means the price didn’t go higher or lower than the previous candle.
This often shows that traders are unsure or waiting.
When the price breaks out of this small candle, it can signal a new move in the market. It’s like a pause before a possible change in direction.
What is inside candle pattern?
An Inside Candle pattern in trading is like a smaller candlestick sitting entirely within the range of the previous one.
In Inside candle pattern you see mainly two candles–
- First one is, big candle which can be Red or Green,
- And the second candle is, smaller candle (this candle also can be Red or Green)
The second candles high or low will not go beyond the first candles high and low.
That means the second candle will be inside into the first candle.
That’s why the first candle also called mother candle and the second candle called inside candle. These two candles together form an inside pattern.
This pattern suggests that the market is taking a small break, not moving much.
Traders look for the price to break out of this pattern because it often means a new trend might start.
It’s like a quiet pause before a possible big move in the market.
Inside pattern example
Imagine you’re watching a stock’s price on a chart. You see a candlestick that’s smaller and fits completely within the high and low prices of the previous candlestick. This is the inside candle pattern.
It’s like the new candlestick is shy and doesn’t go beyond the previous one’s boundaries.
This suggests that the market might be undecided or taking a break before potentially making a significant move.
I think now you understand that what is inside candle meaning and what it shows about market.
Now let’s know about–
Why are inside bars important?
Inside bars, or inside candle patterns, are important in trading because they signal a temporary pause or consolidation in the market.
They show that the price is not making big moves and traders might be uncertain.
When an inside bar pattern is followed by a breakout, it can indicate a new trend or strong price movement, which traders use to make decisions and potentially profit from the market’s next move. It’s like a quiet moment before the storm in trading.
Inside bars are important for traders because they provide valuable information about market sentiment.
Here are some points that explains why inside candle are very important for traders–
- Indecision and Consolidation: When you see an inside bar, it’s a sign that the market is taking a break. Traders might be unsure about the next direction, leading to a temporary pause in price movement.
- Potential Breakout: Inside bars act as a coiled spring. When the price eventually breaks out of the inside bar’s range, it can lead to a strong and often profitable move in the direction of the breakout.
- Risk Management: Traders can use inside bars to set stop-loss and take-profit levels. The inside bar’s range helps define a clear risk-reward ratio for a trade.
- Pattern Recognition: Inside bars are a common candlestick pattern, making them easy to identify. Traders use them alongside other technical analysis tools to make informed decisions.
In simple terms, inside bars help traders spot moments of uncertainty, anticipate potential big moves, and manage their risks effectively, which are essential aspects of successful trading.
Now you know about what is inside candle and why it is important, now let’s know about–
How to trade inside candle?
Here are some steps to trade inside candle–
Step 1. Identify the Inside Candle
Look for a smaller candlestick entirely within the high and low of the previous candlestick on a price chart.
Step 2. Wait for Breakout
Next, wait for the price to break out of the inside candle’s high or low. This breakout often signifies a potential trend.
Step 3. Set Entry and Stop-Loss
When the breakout happens, you can enter a trade in the direction of the breakout (above for a bullish breakout, below for a bearish one). Set a stop-loss to limit potential losses if the trade goes against you.
Let’s understand it with a simple example–
Imagine you’re looking at a stock chart, and you see an inside candle where the current day’s price range is entirely within the previous day’s range.
- If the price breaks above the high of the inside candle on the next day, you might consider buying because it suggests an upward trend.
- If the price breaks below the low of the inside candle, you might consider selling short because it suggests a downward trend.
So this is the simplest method to trade inside candle pattern in stock market.
It doesn’t matter on which chart you are trading inside candle weather it is a particular stock chart or might be Nifty or Banknifty chart, all you have to trade with same method.
Now we move on to–
Inside candle strategies
Certainly, here are a couple of simple inside candle strategies for beginners:
1. Inside Bar Breakout Strategy
- Look for an inside candle (a smaller one within the range of the previous candle).
- Wait for the price to break out above the high or below the low of the inside candle.
- If it breaks upside, consider buying; if it breaks downside, consider selling short.
- Set stop-loss and take-profit levels to manage risk and secure profits.
Example–
Imagine you’re watching a stock chart, and you spot an inside candle where the current day’s price range is entirely within the previous day’s range.
If the price breaks above the high of the inside candle on the next day, you might consider buying because it suggests an upward trend continuation.
For example, if the inside candle’s high is 50 Rs, and the next day’s price breaks above 50 Rs, you could enter a long (buy) trade.
2. Inside Bar as a Continuation Pattern
- Identify an existing trend (upward or downward).
- Look for an inside bar within this trend.
- If the inside bar forms, it often suggests a continuation of the existing trend.
- Consider trading in the direction of the trend (buying in an uptrend, selling in a downtrend) when you spot an inside bar in this context.
For Example:
Suppose you notice a clear uptrend in a stock’s price movement. Within this uptrend, you see an inside bar forming.
This inside bar could indicate that the upward momentum is likely to continue.
You might decide to buy the stock, expecting the uptrend to persist as per the existing trend direction.
3. Inside Bar with Support and Resistance
- Identify key support and resistance levels on your chart.
- Look for an inside bar forming near these levels.
- If the price breaks above resistance or below support after the inside bar, consider trading in that direction.
Example:
You see an inside bar forming near a strong resistance level at Rs 60 for a stock. If the price breaks above Rs 60 after the inside bar, you might enter a long trade, expecting a bullish move.
4. Inside Bar as Reversal Pattern
In a prolonged trend (a trend which is going in one direction from a very long time), spot an inside bar that goes against the current trend (bearish inside bar in an uptrend or bullish inside bar in a downtrend).
- This inside bar may signal a potential trend reversal.
- Wait for confirmation (like a breakout in the opposite direction) before considering a reversal trade.
Example:
In a downtrend, you notice a bullish inside bar forming. If the price breaks above the high of this inside bar, it could indicate a trend reversal, and you might consider a long trade.
5. Inside Bar with Moving Averages
- Use a moving average (e.g., 50-day or 200-day) to identify the trend’s direction.
- Look for inside bars within this trend.
- Trade in the direction of the trend (long in an uptrend, short in a downtrend) when an inside bar confirms the trend.
Example–
You observe an inside bar forming in a stock that has been consistently above its 50-day moving average, indicating an uptrend.
If the inside bar breaks out above its high, it aligns with the upward trend, and you might consider a long trade.
6. Inside Bar as a Rejection Candle
- Look for an inside bar that forms near a significant support or resistance level.
- If the price breaks out in the opposite direction of the inside bar, it can indicate a strong rejection of that level.
- Consider trading in the direction of the breakout.
For Example–
You notice an inside bar near a strong support level at 45 Rs for a stock.
If the price breaks below 45 Rs after the inside bar, it suggests a rejection of that support, and you might enter a short trade, anticipating a downtrend continuation.
7. Inside Bar with Multiple Timeframes
- Analyze the inside bar on both short-term and long-term timeframes (e.g., daily and hourly charts).
- Look for confluence or alignment of the inside bar breakout direction on both timeframes.
- Trade in the direction supported by the breakout on both charts.
For Example:
On a daily chart, you see an inside bar, and on an hourly chart, you observe that the inside bar has broken out in the same direction.
This alignment increases the confidence in the trade direction, making it a stronger trading signal.
So these are some inside pattern trading strategies that you can use when you see inside candle forming on a stock chart.
As always, practice these strategies with caution, use proper risk management, and consider the broader market context before making trading decisions.
What is the 15 minute inside candle strategy?
The 15-minute inside candle strategy is a specific trading approach that focuses on spotting inside candle patterns on a 15-minute price chart. Here’s how it works:
1. Timeframe: Use a 15-minute price chart to analyze price movements.
2. Identify Inside Candle: Look for instances where a 15-minute candle’s price range is entirely contained within the high and low of the previous 15-minute candle.
3. Wait for Breakout: Monitor the market to see if the price breaks above the high or below the low of the inside candle.
4. Trade Entry: If there’s a breakout, consider entering a trade in the direction of the breakout. For example, if the price breaks above the high of the inside candle, you might consider a long trade, and if it breaks below the low, you could consider a short trade.
5. Risk Management: Always set stop-loss and take-profit levels to manage risk and secure potential profits.
This strategy is designed for short-term trading and can be used for various assets like stocks, forex, or cryptocurrencies.
As with any trading strategy, it’s important to practice and backtest it, and consider the broader market context before making trades.
What type of candlestick can be inside candle?
Inside candles, also known as inside bars, can be formed with various types of candlestick patterns. These patterns include:
Bullish Inside Bar: When the inside candle has a smaller range than the previous one and is located within it, suggesting potential bullish momentum if it breaks out above.
- Bearish Inside Bar: Similar to the bullish inside bar, but indicating potential bearish momentum if it breaks out below the previous candle.
- Doji Inside Bar: When the inside candle forms a doji, indicating indecision in the market, and the breakout direction becomes particularly significant.
- Harami Pattern: An inside candle that has a different color than the previous one, often signaling a potential reversal.
- Harami Cross: Similar to the harami but with a doji inside candle, indicating stronger uncertainty and potential reversal.
These inside candlestick patterns are valuable for traders as they can provide insights into market sentiment and potential price movements.
All of the above candlestick patterns we mentioned can formed inside candle pattern on a chart.
It means when you see one of the above Candlestick pattern forming a inside candle then you can trade by using inside pattern strategies.
You can watch below video to understand inside candle and how to use inside candle strategies in trading–
Now I hope you understand the importance of inside candle in trading and also some inside pattern strategies that you can use in live market.
FAQ’s About Inside Bar Candle Pattern
Below we have given some common questions related to Inside Candles and their answers which often arise in the minds of new traders–
Is an inside bar bullish?
An inside bar doesn’t have a built-in bullish or bearish by itself. It signals a pause in price movement. Whether it’s bullish or bearish depends on the context and the direction it breaks out.
Is inside day bullish or bearish?
An inside day, like an inside bar, isn’t inherently bullish or bearish. It indicates consolidation. The direction it turns depends on the breakout that follows.
Is Inside Bar profitable?
Profitability depends on how well it’s used within a trading strategy. An inside bar alone doesn’t guarantee profits; success relies on proper analysis and risk management.
What is the success rate of inside bar?
The success rate varies based on market conditions and strategy. It’s not fixed like 10%, 50% or 80%. Traders often use inside bars in conjunction with other indicators for better accuracy.
Does inside bar include wicks?
Yes, an inside bar includes both the body and wicks. It represents the entire price range within the previous candle’s high and low.
What is the time frame for inside bars?
Inside bars can appear on various timeframes, such as 1-minute, 15-minute, daily, etc. The choice of timeframe depends on a trader’s trading style.
What is the inside bar indicator?
There isn’t a specific “inside bar indicator.” like RSI, Bollinger band, Volume or moving avarage. Traders manually identify inside bars on price charts based on their appearance.
What is the inside day pattern?
An inside day pattern is when the entire price range of the current day’s candle falls within the high and low of the previous day’s candle.
What is the inside bar strategy in Tradingview?
Inside bar strategies in TradingView involve identifying and trading inside bars based on your analysis and trading plan. TradingView provides charting tools to help spot these patterns.
Is inside bar a reversal?
Inside bars can act as reversal patterns, but they can also signal continuation or consolidation. The direction of the breakout following the inside bar helps determine its role in a particular context.
Inside bar chart pattern strategy ‘Conclusion’
In this article we tried to give you full details about inside candlestick. We have covered that what is inside candle and inside bar pattern with example, why it is important, how to trade inside candle pattern and also told you about inside candle strategies.
So if you are new in trading and candlestick chart patterns then I’m sure this article will be very useful for you.
MUST READ:
Bullish Candlestick Patterns PDF Free Download – [3 MB]
If you have any question related inside candle or any other candlestick then you can ask me in the comment section below.
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