'Inside' Story of 'Inside' Candle !!!! -> Definition of Inside Candle
As the name suggests, an inside bar chart pattern engulfs the inside of a large candle, some call it a mother bar. It’s a pattern that forms after a large move in the market and represents a period of consolidation.
The inside bar pattern can be a very powerful price action signal if you understand how to trade it properly. Matching lows and highs are acceptable, however, the inside bar’s range must not be outside of the mother candle by even 1 point.
-> Facts about Inside Candle
Inside bar pattern within the trading range (or shadow) of the preceding bar.
It is at least a two candlestick formation.
Mother candlestick can be either bullish(green) or bearish(red).
The inside bar chart pattern can be bullish or bearish.
Inside bar setup.
-> Procedure to trade Inside Candle
Entering: – When the price action completes an inside candlestick chart pattern, you should mark the low and high of the Inside Bar consolidation range. These two levels are used to trigger a potential trade.
Remember, the inside candle clues us into the eventual breakout and likelihood of a continuation outside the range in the direction of the break, however, it doesn’t give us information about the direction of the breakout through the range, prior to the actual move.
In simple terms, if the price action interrupts the range upwards, then you should go long. If the price action breaks the range downwards, then you should trade the short side.
Exiting: – Projecting the potential move with Inside Bar Breakouts can be challenging. Often inside bar trades can lead to a prolonged impulse move after the breakout, so employing a trailing stop loss after the price has moved in your favor is a smart trade management strategy.
Stop Loss: – In either case (If you are Long or short), your stop should be located below the bottom of the range, as stated in the picture below. There can be a buffer of 1% below the range.
-> Inside Candle helps to identify change in trend
The inside bar candlestick pattern is such a valuable tool because it tells us that the market is not as bullish or bearish as it was in the preceding period.
Being able to identify periods of market expansion and contraction will help any trader improve their odds of finding a winning trade because we know from history that expansion and contraction can only last so long.
When either of those market phases ends, the resulting moves can be explosive!
My OBSERVATION -> It is more effective if used with RSI i.e. when RSI is greater then 70 and inside candle is formed , that spot is best for shorting,
and if RSI is less then 30 and inside candle is formed , that spot is best to go long.
