Justin Bennett is a Forex trader, coach and founder of Daily Price Action. He began trading equities and ETFs in and later transitioned to Forex in His "aha" moment came in when he discovered the simple yet profitable technical patterns he teaches today.

Justin has now taught more than 1, students from 53 countries in the Daily Price Action course and community. Follow JustinBennettFX Recent Lessons. However, the effectiveness of the inside bar strategy is largely based on the price action surrounding it. In other words, an inside bar alone does not constitute a valid trade setup.

We need additional clues to tell us that the potential reward is worth the associated risk. As the name implies, an inside bar or inside candle , is any period on your chart that forms inside of the previous perio d. If you look at a one hour chart, you can probably find multiple inside bars in a single day, whereas you might find just one or two inside bars on the daily chart for the same currency pair.

The chart below shows multiple inside bars in a consolidating market.

Inside bar Forex trading strategy

The example above was an uptrend but they are just as effective if not more in a strong downtrend. Why does size matter? That might sound confusing for now, but it will soon make sense, I promise! In order to properly explain relative size, we need to discuss how to enter an inside bar trade and where to place our stop loss.

The best place to enter an inside bar is on a break of the mother bar high or low in the direction of the trend. So now we know where to enter the inside bar trade, but to really understand why relative size is important we need to understand where to place our stop loss order. We have two options when placing our stop loss order.

The first option is to place our stop loss just below the mother bar low.

The second option is to place the stop loss below the inside bar low. Just know that we should always aim for, at minimum, a 1: So if our stop loss needs to be 50 pips away, our profit target must give us at least pips. The EURJPY example above works for us, because there was no immediate resistance above. The stop loss would need to be pips away from our entry, and the trade would have easily given us pips or more. On the surface this looks like a valid inside bar trade setup.

We have an inside bar on the daily chart in a strong downtrend…everything looks good. As you can see, previous support and resistance levels play an important role when determining whether an inside bar is worth trading.

So, what this means that relative size of the inside bar to the mother bar is important, but support and resistance levels are equally important. They all go hand in hand if you ask me.

I see many traders making the mistake of taking inside bar trades without clearly defining their support and resistance levels. This is just asking for trouble. You need to know what previous price action has done in order to put the odds in your favor.

This is true for any type of price action setup, not just inside bars. I hope this lesson has provided you with some helpful tips that you can implement in your trading plan.

Inside Bars (And How to Trade Them)

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