An inside bar chart pattern forms within a larger candle, some call it a mother bar. It is a pattern that forms after a large market move and represents a period of consolidation, with the next candle being bearish. Incorporating the inside bar strategy into a trading system can enhance a trader's market analysis techniques.
The Bearish Inside Bar is a key candlestick pattern that signals the possibility of a downtrend. It is formed by two candles. The first candle (mother bar) is large, demonstrating the strength of the current trend. The second candle (inside bar) is small, forming entirely within the high and low range of the first candle. This indicates stagnation and uncertainty in the market.
The psychology behind this pattern is that after a sharp move (mother bar), the market takes a breather and prepares for a breakout. The Bearish Inside Bar is confirmed only when the price breaks below the low of the mother bar. This breakout signals increased selling pressure and the beginning of a downtrend.
To trade this pattern, look for this pattern in a downtrend. Place an entry with a sell stop order on the breakout below the low of the mother bar. Place a stop loss just above the high of the inside bar. Place the target based on previous support or risk-reward. This pattern works best after a significant resistance or pullback in a downtrend.
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