and lower high than the bar immediately before it (some traders use a more

lenient definition of inside bars to include equal bars). On a smaller time frame it
will usually look like a triangle.
An inside bar indicates a time of indecision and consolidation. Inside bars

often occur within trending markets and can signal a trend continuation
as a breakout play. They also sometimes occur at tops and bottoms, key
support / resistance levels and in consolidation.
They often provide a low-risk place to enter a trade or a logical exit point.
The most logical time to use an inside bar is when a strong trend is in

progress. If we play the breakout, our stop loss can be defined by

placing it below the halfway point of the outside bar or mother candle, or
below the low or high of the mother candle.
They are very good when trading a trend on the daily charts, and can be

good to identify market turning points when trading against the trend
(rare).
Inside bars show market movement is stalling, these are natural periods of

rest that occur before a market makes another strong move.

See Chart example:

The definition of an inside bar

There are different variations, but the way I determine an inside bar setup is if
the inside bar is contained within the range of the mother bar from high to low.
That is to say, I use the mother bar high and low to define the range that the
inside bar can be contained within, others might use only the real body of the
mother candle as the determining range, but I do not teach or trade it that way. I
do allow for one end of the inside bar to be equal to one end of the mother bar,
e.g., mother bar and inside bar have equal lows but the inside bar high is lower
than mother bar high, or vice versa, this is OK. But if we have two bars with the
exact same high and low, I don't consider this an inside bar setup.
In the example image below, we can see the anatomy of an inside bar setup.
Note that the inside bar is fully contained within the range of the high and low of
the mother bar. You can have multiple inside bars within the range of one mother
bar. If you see a pattern of consecutive inside bars that are "coiling" and all
within the previous bar's range, this can signal that a powerful breakout might be
coming, more on this later.
Important note: Since the inside bar setup is by its very nature a potential
breakout signal, I MAINLY enter an inside bar on a breakout of the mother bar
high or low. If I am looking to buy, I will place a buy 'on stop' entry just above
the mother bar high, and if I am looking to sell I will place a sell 'on stop' entry
just below the mother bar low. However, there are instances where you can enter
'early', just before the mother bar high or low breaks, these tend to come in
strong trending markets when through 'gut feel' you're anticipating the inside bar

breakout with the trend...this is a more advanced inside bar entry technique that
you shouldn't try until you've gained some experience / screen time.

The BEST way to trade inside bars

The best, easiest and most lucrative way to trade the inside bar setup, and how I
want you to learn to trade it FIRST, is as a trend-continuation / breakout play on
the DAILY CHART time frame.
Inside bars become significantly more difficult to trade as you move under the
daily chart time frame, simply because they increase in number as you move
lower in time frame and the 'chop' increases. Inside bars on time frames under
the 4 hour chart are especially risky and prone to false-breaks and stop outs, for
this reason I never trade an inside bar under a 4 hour chart and I urge you not
to either. 90% of my inside bar trades are taken on the daily chart time frame
and I encourage you to focus only on inside bars on the daily charts as even 4
hour inside bars are pretty difficult to trade if you're not a very experienced
trader.
In the chart example below, we can see a few examples of good inside bar
signals on the daily chart time frame. Note the 'inside pin bar' combo setup, this
is basically just an inside bar that's also a pin bar, it is traded just like a normal
inside bar setup, i.e., on a break of the mother bar high or low, but it has a little
added 'weight' to it since the market is showing rejection of lower prices, in the
case of an uptrend this gives you a little extra clue that an upside breakout may
indeed be imminent. For a downtrend, we'd obviously like to see a bearish inside
pin bar (showing rejection of higher prices.).
The last inside bar on the right, shows two inside bars within the same mother
bar's range, this happens relatively often and is fine to trade. I typically don't like
more than 3 to 4 inside bars per mother bar though. One or two inside bars
followed by the breakout is the 'ideal' inside bar signal scenario however.
In the chapter on trends, we discussed the importance of waiting for a retrace
back to support / resistance (value areas) before trading a price action signal, as
setups near the top or bottom of moves tend to fail often. Well, this is still true,
but it depends on market context (always a catch right?).
The thing is this: if a market is in a near 'perfect trend' (also discussed in trend
chapter) and respecting the 8 / 21 day EMA's nearly perfectly, you will often see
daily chart inside bar setups work very well that form from near the 8 day EMA,
after a minimal pullback to value. These inside bars are often lucrative and easy
to trade, but it does take some time to develop your 'gut' trading feel for these
situations; it won't happen 'overnight'.
Strong trends with low volatility where price is respecting the 8 / 21 day EMAs
tend to need less of a pullback before entering from a price action setup, and
inside bars are ideal setups for such situations. We see an example of this below:

Inside bar stop loss placement

I already have a couple of thorough resources on how I place stop losses on
inside bars, so I won't get into too much again here.

To learn the two basic stop loss placements on inside bar setups, please read
these two lessons:
-trading-strategies/inside-bar-forex-strateg
-A-Guide-On-How-to-Set-Stop-Losses
Also, checkout Chapter 11 of this course for more on stop loss placements.

Inside bars in trending markets: breakouts from consolidation:

Often, as a market trends it will pause for a while and consolidate sideways
before making another leg in the direction of the trend. Inside bars can be good
to trade in these situations because they often happen just before the
consolidation breaks and the trends resume. In the chart below, we can see an
example of this. Note the five days of sideways consolidation that occurred just
before the inside bar buy signal formed. If you had placed your stop loss near
the mother bar 50% level you could have easily attend a 1:2 risk / reward over a
three day period on this inside bar breakout trade:
Coiling inside bar setup
The 'coiling' inside bar setup is exactly what it sounds like; two or more inside
bars that are 'coiled' within one another. That is to say, each inside bar is within
the range of the previous inside bar, so the previous inside bar is a new mother
bar; the inside bars get smaller and smaller and stay within the range of the
previous inside bar.
Let's look at an example on the charts. Note in the chart below, there are two
inside bars within the range of the main mother bar. The second inside bar is
'coiled' within the range of the first inside bar. For a smaller inside bar setup like
this one, you can just enter on a break of the mother bar low (or high). For
coiled inside bar setups with a larger main mother bar, you may be able to get a
better risk reward by entering on the break of one of the subsequent mother
bars, although this is a more advanced entry technique.
The main thing to remember about coiling inside bars is that they can lead to
very strong breakouts because they reflect tighter and tighter consolidation. The
coiling inside bar setup shows a lot of 'compression', and when that compression
is released, it can lead to very strong moves, especially in trending markets. The
coiled inside bar setup in the chart below formed in the context of a downtrend in
the Gold market, and we can see it led to a very strong continuation of the trend
once price broke below the main mother bar low:

Inside bars at key chart levels / as reversal signals

Inside bars can also be traded from key levels of support or resistance as
reversal signals. Trading them in this manner is a bit more advanced and should
only be tried after you've gained significant trading them in-line with the trend as
continuation signals as we discussed above.
These inside bar signals from key levels can lead to big directional moves and
even changes of trend. So it's important you learn about them.
In the chart below, we can see a key level of support and an inside bar setup
that formed just above it. Note, this level was CLEARLY a key level as it led to a

substantial upward move previously. When price tested this level again, it formed
a bullish pin bar, followed by the inside bar setup a few days later. The inside bar
setup showed us the market was consolidating just above this key support and
providing us with a low-risk / high-reward potential by placing our stop loss just
below the mother bar low. Note the huge up-move that followed.

Inside bar false-breaks at key chart levels

Often, when an inside bar forms at a key daily chart level, it will see price falsebreak from it before reversing. This is an important event to watch for and it
provides you with some understanding of the fakey signal which will discuss in
the next chapter.
In the chart below, we can see an inside bar setup formed at a key resistance
level. The market tried pushing higher from this inside bar signal initially, but the
bears came in and sold the market lower shortly after the break higher, resulting
in a huge inside bar false break.
It's very important you are cautious with inside bars at key daily chart levels like
this as they will often lead to false-break / fakey signals which are themselves
very good reversal signals. You'll learn more on the fakey in Chapter 6, but for
now, you should know that inside bars at key chart levels will often lead to falsebreaks before the market reverses and moves away from the key level in the
opposite direction...

Inside bars after pin bars

Inside bars sometimes like to form after a pin bar. Especially, after long-tailed
inside bars at key levels like the one in the chart below. These inside bars
provide us with an obvious place to put our stop loss (just above or below the
mother bar) and they have the added weight / confirmation that the preceding
pin bar brings.

Miscellaneous notes on inside bar trading:

Inside bars can sometimes be traded on the 4 hour time frame. However,

as I stated above, you NEED to learn to trade them on the daily chart
first and even as you progress you should still mainly trade inside bars
on the daily chart. I still basically only trade daily chart inside bars.
There are a lot of false-breaks of inside bars on the 4 hour and 1 hour
time frame, so I tend to avoid inside bars on those time frames.
Although, occasionally, you will find some good inside bars on the 4 hour
chart in-line with the daily chart trend.
I often get emails from people asking about the 'colors' of the mother bar

or inside bar. What they're really asking is 'does the close of the mother
bar or inside bar matter?' The answer, is no. You don't need to the
mother bar or inside bar to close in your favor, like you will want to see

on a counter-trend pin bar in most cases. As long as the inside bar

makes sense and is ideally in-line with the daily chart trend, you're OK.
Inside bars and fakey's are two different setups. You can never fully know

"for sure" if an inside bar will turn into a fakey. Just like you can never
know "for sure" if any strategy or setup will work out before you take it.
But there are some things you can do to put the odds in your favor with
inside bars...
I actually get a lot of people writing in asking me how to "avoid trading inside
bars that turn into fakeys", the best way to do this is to not trade inside bars
against the trend. The only inside bars you should ever consider trading against
the trend are ones on the daily chart that are at extremely obvious "core"
support or resistance levels (see above notes on this), but please try to stick
exclusively to trading inside bars with the trend, and on the daily charts, until
you feel you've mastered it.