What it looks like
Three parts. First a bigger candle, often called the mother bar. Next an inside bar: its high is below the mother bar's high and its low is above the mother bar's low, so the whole candle, wicks included, sits within the range before it. Then a later candle closes above the mother bar's high. A wick above the high is not enough: it needs a close.
What it means
The inside bar shows the market pausing: neither buyers nor sellers could push beyond the last candle's range. That squeeze stores up orders on both sides. When a candle finally closes above the mother bar, buyers have won the squeeze, and traders who were waiting on the sidelines tend to join in. It matters most when it happens in an uptrend or after a pullback to a level, because then the pause is a rest, not a top.
How to trade it
- 1
Mark the high and low of the mother bar once an inside bar has formed.
- 2
Confirmation: a candle closes above the mother bar's high.
- 3
Entry: buy at that close.
- 4
Stop: below the low of the mother bar. Example on US30: mother bar from 46,900 to 47,020 (120 points), close above at 47,030. Buy at 47,030 with the stop at 46,890, a 140 point risk.
- 5
Target: at least the height of the mother bar from the break, so 47,020 plus 120 points, about 47,140, or the next key level if it is closer.
A close back inside the mother bar's range after the breakout candle has closed.
Where it works best
On the 1 hour, 4 hour and daily charts in a market that is already trending up, especially when the inside bar forms at a support level or a moving average.
WickSpeak spots inside bar breakouts up automatically and names the pattern on the candles that made it. It writes what the pattern is, how to trade it and the close back inside the bigger candle that would prove it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Entering when a wick pokes above the mother bar instead of waiting for the close.
- Trading inside bars after a huge mother bar, where the stop is so wide the target cannot pay for it.
- Ignoring the trend and buying inside bar breaks straight into a strong resistance level.
Related patterns
Questions traders ask
What is an inside bar breakout?
It is the moment price closes beyond the range of a mother bar after an inside bar has formed inside it. The bullish version closes above the mother bar's high. It shows the market leaving a pause in one direction.
Where do you put the stop on an inside bar breakout?
The classic stop for a bullish break is below the low of the mother bar. Some traders use the inside bar's own low for a tighter stop, but that is cancelled more often by normal noise.
What timeframe is best for inside bars?
Inside bars are most reliable on the 4 hour and daily charts, where each candle carries more activity. On 1 to 5 minute charts they appear constantly and many breaks fail.
What if the breakout fails?
If price closes back inside the mother bar, the setup is proved wrong. A break that fails and then closes beyond the other side is a different pattern called a fakey, which can be traded the other way.