Inside bar

An inside bar is a candle whose high is below the previous candle's high and whose low is above the previous candle's low. The whole candle, wicks included, fits inside the one before it. That larger previous candle is called the mother bar.

What it tells you is compression. The mother bar covered a wide area, and the next candle couldn't get outside it. Neither buyers nor sellers were keen enough to push past the previous candle's edges. The market held its breath for one candle.

An inside bar doesn't predict direction on its own. Which way the squeeze breaks depends on whether the mother bar's high or low is cleared on a close. So an inside bar isn't a signal; it's a waiting point that hands you two clear levels.

It's often confused with the harami. A harami looks at bodies: the second body sits inside the first. An inside bar looks at the full range, wicks included, so it's the stricter definition, and not every harami is an inside bar.

Say the mother bar's high is 1.2740 and its low 1.2680, a 60-pip candle. The next candle's high is 1.2725 and its low 1.2700. That 25-pip candle sits entirely inside the mother bar, so you have an inside bar.

Now you have two levels: 1.2740 above, 1.2680 below. A close above 1.2740 means the squeeze broke up; a close below 1.2680 means it broke down. A candle that wicks out and closes back inside says the squeeze is still on. In price action circles that false break is sometimes called a fakey.

Check context first. In an uptrend, an inside bar at a support zone after a pullback is a meaningful spot for a break in the trend's direction. The same candle far from any level is just a small candle.

The logical stop sits on the other side of the break. Enter a break up at 1.2745, and a tight stop goes a little under the inside bar's low at 1.2700; put it at 1.2695 and your 1R is 50 pips. A wider stop goes under the mother bar's low, but then 1R grows past 65 pips and your position has to shrink.

Trading every inside bar. They show up constantly. Most form in the middle of a move rather than at a level and say nothing. The ones worth attention sit on support or resistance, or at the end of a pullback in a trend.

Ignoring the mother bar's size. If the mother bar is a 150-pip news candle, a stop beyond its far end is too distant and the target won't justify the risk. Then the inside bar's own edge may be a more reasonable stop, or the better choice is no trade.

Placing a breakout order without waiting for a close. A buy stop just above the mother bar's high is common, but other traders' stops sit there too. A wick reaches up, fills your order, the candle closes back inside, and you're caught in the middle of the structure.

On small timeframes and in quiet hours. On a five-minute chart during a slow Asian session hour, back-to-back inside bars are normal while price twitches a few pips, and most of them mean nothing. Inside bars are watched mostly on daily and four-hour charts.

They also multiply right before major data. The market waits and candles narrow. That compression comes from the calendar, not the structure, and the release can break it with wicks on both sides.

An inside bar in the middle of a sideways range adds no information either. If price is already squeezed inside a range, a small squeeze within it is just a smaller copy of the same indecision. The levels that matter there are the edges of the range.