The Inside Bar Pattern (Break Out or Reversal Pattern)
An Inside bar pattern Is a two-bar price action trading strategy in which the inside bar Is smaller and within the high to low range of the prior bar. i.e. the high is lower than the previous bars high. and the low is higher than the previous bars low. Its relative position can be at the top. the middle or the bottom of the prior bar.
The prior bar, the bar before the inside bar, is often referred to as the °mother bar. You will sometimes see an inside bar referred to as an Ib and its mother bar referred to as an ‘mb.
Some traders use a more lenient definition of an inside bar that allows for the highs of the inside bar and the mother bar to be equal. or for the lows of both bars to be equal. However, If you have two bars with the same high and low, it’s generally not considered an inside bar by most traders.
Inside bars show a period of consolidation in a market. A daily chart inside bar will look like a ‘triangle’ on a 1 hour or 30 minute chart time frame. They often form following a strong move in a market, as It ‘pauses to consolidate before making Its next move. However, they can also form at market turning points and act as reversal signals from key support or resistance levels. ”