Amongst the many available indicators in the financial market, triangle patterns are pretty famous and preferred by many traders. A trader can use the triangle pattern in the forex market to better view the movement of the price in the coming future. The trader can also predict the trend that may follow with the help of the triangle patterns.

There are three types of triangle patterns that can be commonly seen in the forex market. Each pattern has its characteristics and different ways to interpret them.  

In this article, you will read about different types of triangle forex patterns, how they can be interpreted and how to trade with the help of these patterns.

What Are Triangle Patterns?

Triangle patterns represent triangle-like shapes on trading charts which usually refer to a trend continuation.

A triangle pattern in forex is a pattern that can be seen primarily in the middle of a trend. This pattern usually indicates that the trend will continue. This pattern is straightforward to be traced on the price chart. It is made up of two lines that converge at a point. Both the lines are formed, joining the movement of price in the market. There is an upper trendline that joins the high points and a lower trendline that joins the lows. When the price movement breaks out of this pattern in the same direction as the ongoing trend, the traders plan to enter the market. 

There are many charts available for technical analysis in the market. But the most commonly used by traders are only three or four. The trader can learn and use the triangle patterns on the chart they are familiar with.

What is a Symmetrical Triangle Pattern?

Like any other triangle pattern, this pattern is drawn by joining two converging trendlines on a chart. This particular triangle pattern is also seen as a starting point for all other triangle patterns in the market. While different patterns may depict that they bend towards a specific direction, a symmetrical triangle is more direction neutral. That is, it does not fall or turn in any order. But, just like other triangle patterns, this pattern also indicates the continuation of the ongoing trend. And so, here also, traders look for breakouts towards the current trend.

How to Trade with a Symmetrical Triangle Pattern?

One of the benefits of trading with a triangle pattern is that it comes with its measuring technique. This technique can be used in any triangle pattern. Traders can calculate the ‘take profit’ target and trade accordingly.

To measure this ‘take profit’ target, the trader has to measure the distance between the upper and lower trendline at the beginning of the pattern and use the exact measurement to determine the profit target after the breakout occurs.

Amongst other triangle patterns, the symmetrical triangle is rare to find. That is why traders are advised not to blindly jump into trading and make sure they have not made any mistakes while spotting the triangle pattern.

Ascending Triangle Pattern

The ascending triangle pattern represents a rising trend pattern that implies a flat top with higher lows and shows the beginning of a bullish trend.

The ascending triangle pattern can be identified with a flatter upper trendline and a rising lower trendline. The flat upper trendline acts as a support or resistance to the price movement, while the increasing lower trendline indicates the higher lows. These higher lows show that the buyers are more active than the sellers. When there is a breakout in the pattern, it usually follows the uptrend or bullish trend. 

Apart from all the indicators available as an option to all the traders, an ascending triangle can give assurance of the price action predictions. Appearing in the middle of the trend, it is also known as a continuation pattern. This pattern helps anticipate the move of the trend in the market and helps the traders plan their trade accordingly.

Read this article to understand ascending triangle patterns and how to trade with ascending triangles.

The ascending triangle is a pattern that can be identified with a straight upper line, which is also the support line of the pattern. The lower line of the triangle is slanting upwards, marking the higher lows. This pattern indicates that a bullish trend is approaching as the buyers are more active than the sellers when this pattern appears. The breakout in the pattern confirms the continuation of the bullish trend.

The ascending triangle may confirm that a bullish trend is approaching, but whether it is a continuation of the direction or a reversal depends upon where the pattern occurs in the trend. For example, if the pattern is seen during a downtrend or maybe at the bottom of it, it may mark the end of the downtrend and hence the reversal in the trend. So, the traders should be aware of the location of the ascending triangle.

The traders who have been trading in the forex now will quickly identify the ascending triangle pattern in the charts. Following are some key points that traders can look for to identify the pattern more easily:

• Upward Trend: Traders are always advised not to blindly jump into trading once they spot an ascending triangle in the trend. They should make sure if the market were in an upward trend before they saw the ascending triangle.

• Consolidating Market: Traders should be aware when the market becomes consolidated because that is when the ascending triangle may appear in the market.

• Rising lower trendline: Ascending triangle is characterized by its upward slanting bottom line. This line is drawn to join the lows in the trend, which shows the situation of a rising low. This indicates that the market is entering a bullish trend due to more active buyers than sellers.

• Flat Support Line:  The support line or the upper line is flatter and works as a support or resistance for the trend. In simple words, if you look at the pattern, whenever the price touches this line, it bounces back before the breakout occurs.

• Continuation in Trend: The bullish trend continues after the price breaks out of the upper trendline. To confirm the continuation of this trend, the trader must look if the price continues to move upward.

How to Measure Ascending Triangle? 

While many traders may know how to measure the ascending triangle, many may not see that pattern comes with its in-built profit measuring technique.

It’s a simple technique with merely two steps to measure the profit the trader should aim for or can expect after the breakthrough in this pattern, stating that the trend must continue.

The first step of the two is to measure the distance between the lowest point that lies on the bottom trendline and the flat upper line at the beginning of the pattern. The next step is to take the same distance and measure the possible profit from the breakthrough point.

Using this technique, the trader can aim for profit and plan his trading accordingly.

Ascendant Triangle Advantages and Drawbacks

The ascending triangle is a trader-friendly pattern. It helps the trader understand the trend if there will be a reversal or continuation in the trend. But everything comes with its limitations, and the ascending triangle is no exception to that fact.

Advantages

• This pattern is easier to identify. Even beginners can do trace this pattern with little knowledge.
• This pattern can confirm the continuation or reversal of an upward trend, attracting more and more buyers.
• Its in-built measuring technique is easy to use and helps the trader identify the possible profits.

Drawbacks

• Since the trend in this pattern is confirmed only after the breakout, there can be a false breakout. So the traders are advised to have good risk management.
• It is not always necessary that the price will move within the pattern. It can or may move lower or sideways of the triangle.

How to Trade with Ascending Triangle?

Just like the symmetrical triangle pattern, a trader can measure the distance between the flat upper trendline and the ascending lower trendline and use the same distance to measure the profit target after the breakout. Traders are advised to ensure that the trend follows after the breakout and is not a false breakout. 

Descending Triangle Pattern

Just like the name, the descending triangle pattern is quite the opposite of the ascending triangle pattern. This pattern has a flatter lower trendline and a downward slanting upper trendline. Here, the flat lower trendline acts as a support or resistance, and the upper descending trendline indicates the lower highs. The lower high shows that the sellers are more active in the market as compared to buyers. 

How to Trade Descending Triangle Pattern?

Unlike symmetrical and ascending triangle patterns, the breakout in descending triangles usually occurs with a downward trend, which indicates that the buyers sit back and the sellers try to bring the price down. This break from the lower support line encourages the trader to go short. Traders put a stop loss just above the slanting upper trendline. But the take profit target here is used by calculating the same distance at the beginning of the pattern and putting it downwards at the beginning of the breakout. 

Conclusion

After reading all three types of triangle patterns, the trader must try to keep the following points in mind while trading these patterns.

1. The trader must be aware of the trend preceding the triangle pattern formation. This is one of the critical points to determine the future movement of the price. 
2. Traders must adequately understand how to use the measuring technique discussed above to identify the profit target.
3. Traders must look out for false breakouts that are not uncommon. They must also have a sound risk management plan to battle any unexpected loss. 
4. The trader must be efficient in distinguishing between the upper and lower trendline to understand which type of triangle pattern will occur. 
5. Traders are also advised to first practice identifying these patterns before actually trading with them. Because of their similar looks, traders can get easily mistaken. 
6. It is crucial to understand that traders must understand what the price action indicates instead of looking for the desired pattern in the forex price chart.

Traders use Pennants to calculate further movements of the market as they are prolonging patterns visible on the forex market. Just as the triangle pattern, the Pennant pattern also has some notable differences worth knowing for traders. This article will help learn pennant chart pattern recognition, what they intend, its cause, and most considerably, how to apply them for more effective trade results.

What is a pennant pattern?

A pennant pattern (flag pattern) is a breakout chart pattern that follows the main price trend and has a rectangular shape resembling a flag. It suggests if the trend would continue for a long time frame or would be reversed in a swift motion.

Pennant Pattern features

Pennant pattern is a breakout chart pattern. It is preferred when a large ascending or descending movement is noted by security. Before any further movement in a similar direction, a detailed alliance is made. The pennant pattern appears to be a minute, evenly arranged triangle, and it is made from several forex candlesticks. Pennant patterns are generally mentioned in two types as bullish or bearish, which depends on the direction of their movement.

While you take a glimpse of the Pennant prolongation pattern, below-written details would be noticed:

• A flagpole: A Pennant pattern regularly commences from a flagpole, thereby differentiating it from such other patterns (like the evenly arranged triangle). The first subsequent and robust movement introducing the evenly arranged triangle is called a flagpole.
• Breakout levels: One breakout will be found at the ending of the flagpole, and the second will happen after the strengthening cycle, where ascending or descending drift will keep going.
• The Pennant itself: The triangular design formed at the time of market consolidation, happening in the midst of the breakout, and the flagpole is called the pennant. The two merging trend lines generate the triangle, called the Pennant.

Bullish Pennant Pattern

The bullish pennant chart pattern or bull pennant represents the bullish breakout pattern during the main bullish trend, after a short period of consolidation, formed in an area less than 50% of bullish retracement.

Figure 1: Bullish pennant pattern

Prolonging candlestick patterns, which take place in a solid upward moment, is called Bullish Pennants. The Pennant formation happens when the flagpole rises, a concentrated time span, and then prolongs the rising post to the breakout. Dealers keep looking for discontinuity on to the top of the pennant so that they can have the benefit of the improved bullish power.

Bearish Pennant Pattern

The bearish pennant or bear pennant represents the bearish breakout pattern during the main bearish trend, after a short period of consolidation, formed in an area less than 50% of bearish retracement.

Figure 2: Bearish pennant pattern

Bearish Pennants and Bullish Pennant are inversely proportional to each other. Pennants formed by prolonging patterns that appear in rigid droops are known as Bearish Pennants. Bearish Pennants always commence from a flagpole – a saturated price drop, chased by a break during descending movement. This break develops a triangle shape, which is called a Pennant. Then comes breakout, and the descending activity prolongs. Traders keep an eye to access precise deals on a gap beneath the pennant.

Difference Between Triangle Pattern and Pennant Pattern

• A Pennant pattern is supposed to be scouted by a solid ascending or descending move that features a flagpole. If the flagpole is not present, it won’t be a pennant but just a simple triangle.
• A shallow retracing has been developed by Pennant (Generally, it is not more than 38% of the flagpole). A deep retracing demonstrates a triangle instead of a Pennant.
• Prolongation of the ascending or descending trend distinguishes a pennant.
• A Pennant is a compressed pattern that is generally concluded within a week or three. It is a triangle pattern that takes more time to develop.

Trading the Bearish Pennants and Bullish Pennants

While trading, the approach is made to Bearish Pennant and Bullish Pennant patterns will be the same, but the Bullish Pennant would have a sustained inclination while the Bearish Pennant will have an un-sustained inclination. The case below shows the way to deal with a Bullish Pennant noticed in NZD/GBP.

After an abrupt and acute price movement, a dealer should examine to access the deal on an affirmation of a breakout. Post to an abrupt and acute price movement, the pennant shows favorable signs for a breakout and prolongation regarding the first movement.

Candlestick closing upon the pennant avails the entrance. In this case, the break changed into a considerable substitute and brought the chance of an endured upward flow.

Observing a quite big move, break-in damage can be located at the shallow of the breakout candle or, more traditional traders can locate a stop underneath the pennant limit to minimize the risk. This technique usually provides a convincing level of shield to the traders.

The Bottom Line

Traders should consistently endorse reasonable risk management because the market is always unpredictable. Because of this, never trade with a principal that you cannot afford to give up.

Measuring the space between commencement of the flagpole and the Pennant can help traders to set the target level, later on, duplicating this gap against the breakout in rates and then pursuing the Pennant.

Hopefully, the knowledge delivered in this article proves to help understand pennant patterns, their types, and trading methods.

What is Ascending Triangle?

The ascending triangle pattern represents a rising trend pattern that implies a flat top with higher lows and shows the beginning of a bullish trend.

As a result, the sellers sit back, and buyers aggressively approach the market. Therefore, continuation or reversal, whichever the case may be, the market has to offer many profitable opportunities after this pattern. However, it is advisable to always look out for other patterns as the market is unpredictable.

Traders often get confused between rising wedges and ascending triangles as they both are not very commonly spotted. So it is essential to understand both to differentiate between them.

Contrary to the rising wedge pattern, the ascending triangle is an indicator of an approaching upward trend. It could signify a previous uptrend or a reversal signal if a downward trend appeared before the pattern appeared.

What is a Rising Wedge Pattern?

The rising wedge pattern represents a bearish continuation pattern that is formed after the rising correction. In a bullish trend, price bounces between two slopings begin wide at the bottom and contract as prices move higher. After the rising correction, the continuation patterns follow the major downtrend.

Mostly observed in downward trending markets, the rising wedge pattern stands opposite the falling wedge pattern. Thus, the traders must possess a good knowledge of both falling wedge patterns and rising wedge patterns to identify the trend and make the best trading decisions.

Ascending triangle vs. rising wedge

The difference between a descending triangle and the falling wedge is:

• The Ascending triangle has a flat top with higher lows or a rising trendline, while the rising wedge doesn’t have a flat top.
• The rising wedge is a bearish pattern and follows the major bearish trend, while the descending triangle is a bullish pattern.

Before understanding the significance of a rising wedge pattern, one should know how it is plotted on a commodity price chart. It is plotted by drawing two lines, one joining the highs and the other joining the lows, creating an angle when they meet. 

One must understand that this rising wedge is indicated when the resultant angle is pointing upwards. This positive inclination is a signal of an approaching bearish trend. However, this trend could signify a previous downtrend or a reversal trend if it was an upward or bullish trend before the rising wedge pattern appeared. Whichever the case is, the result of a rising wedge is the following downtrend.

Not all traders are well versed with the technique to plot a rising wedge in the price chart as it is not commonly used. But it can be beneficial because once successfully spotted, there is no need to confirm the downtrend, like any other indicator. Instead, there will be a downtrend, and the sellers can pull up their socks to reach their selling targets. However, it is still suggested to look for any further changes that may happen in the market.

As mentioned before, differentiating between the rising wedge pattern and the ascending triangle pattern can be confusing due to their similar looks and not-so-common use amongst the traders. However, what they indicate is completely contrary. One indicates a potential exit opportunity from the market, while the other indicates an entry point.

If you are new to trading, it becomes important to understand how to differentiate these patterns. First, one can look at the pattern and acknowledge the slope of the resistance line or the upward line of the pattern. The slope in the case of the rising wedge is upward-pointing, while in the case of the ascending triangle, it is rather a straight line, and it is the bottom line that is approaching the convergence line. Also, one can confirm the pattern by noticing the trend that follows the pattern. If it is bullish, then the pattern is the ascending triangle, and if it is bearish, then it is the rising wedge. 

Another approach to differentiate between the two is when one gives attention to the volume of both the patterns. For example, in rising wedges, the volume for down strings is higher than a higher upswing in ascending triangle. 

Trading With A Rising Wedge

A very significant approach while using the wedge or a triangle is to look for the breakouts and the pullbacks within the resistance line or the signal line of the pattern. 

While working with the rising wedge, its bottom or lower line is its resistance line or signal line. 

The breakout in the resistance line indicates that one can enter the market but according to the direction of the break. However, there is always a possibility of false breakouts. Therefore, one must put a stop-loss to provide some free space for the movement of the price. Then, just the trend is confirmed, traders can decide to enter the market.

It is advisable not to jump to a decision immediately after the breakout and wait for a possible pullback signal. But in the case of the rising wedge, a pullback may not be necessary, and the price movement can be very aggressive; thus, a pullback may not occur, and the price continues with the ongoing trend. In this case, the trader can stop loss and stay in the market until it reaches the set limit.  

The Advantages and Drawbacks of The Rising Wedge

Before using the rising wedge as your indicator, you must know the advantages and drawbacks that follow this pattern. 

Advantages

• The rising wedge is not restricted to a single type of market, i.e., it can be used in more than one type of commodity market.
• An experienced trader can easily identify and use this pattern. They know when to enter, limit the levels, and/or stop trading.
• If identified correctly, the rising wedge can provide favorable ratios to the trader.

Drawbacks

• An inexperienced or newcomer may not identify the rising wedge correctly and may get confused with other similar patterns.
• It is not fixed to be a particular type of trend, i.e., it may be a continuation of the trend or a trend reversal.
• It needs to be supported by other oscillators or technical indicators for confirmation.

Trading With An Ascending Triangle

The best recommendation to trade while using such patterns is to wait for the breakout. Breakout is basically when the prices go out of the resistance line of the pattern being used.

In the case of the ascending triangle, the breakout results in an uptrend, therefore indicating the trader to enter the market for a long term as the possibility of the continuation of the uptrend is high. It is also advisable to put the stop loss just below the bottom line of the ascending triangle, as it is the resistance line or signal of this pattern.

However, it is better not to jump into buying and wait for an initial pullback after the breakout. Also, be restrictive with the trading volumes as it can get beautiful to trade more initially. One must go with the flow of the trend.

The Advantages and Drawbacks of Ascending Triangle

Advantages

• It does not require any hardcore practice to identify this pattern. It can be easily identified. Also, the breakout is very clearly seen.
• It provides traders an opportunity to create short-term trades inside the bounds of the pattern. Again, this is possible because of the medium-term life of the pattern.

Drawbacks

• There is no assurance that the price may not go sideways and that too for a longer period; it can also result in a downtrend.
• The breakout patterns can be misleading. 

Conclusion

Both Rising Wedge and Ascending Triangle are similar and yet opposite from each other. They both look similar but can easily be identified by their resistance line, sloppy in the rising wedge and straight for the ascending triangle. The former basically signifies a trend reversal, while the latter signifies a continuation in the trend. However, trading in both patterns depends upon their possible pullbacks and breakouts. 

What is Pin Bar in Forex Trading?

Pin Bar or Pinocchio Bar represents a single candlestick with a long wick that indicates future sharp reversal, rejection of price. Pin bar can be bullish or bearish.

What is a bullish pin bar?

A bullish pin bar is one candle pattern with a longer down the wick and represents a sharp reversal, rejection of price, and usually indicates a future rising trend. The image below is an example of a bullish pin bar reversal candlestick:

What is a bearish pin bar?

A bearish pin bar is one candle pattern with a long upper wick representing a sharp reversal, rejection of price and usually indicates a future downtrend. The image below is an example of a bearish pin bar reversal candlestick:

One of the many strategies available to a trader to understand the price action in the market is the Pin Bar Pattern. It is a candlestick pattern that derived its name from the expression “Pinocchio Bar” for its similarities with the shape and relevance with that of Pinocchio’s nose. 

A Pin Car basically represents an upcoming rejection or reversal in the ongoing price trend. According to the Pin Bar pattern creator, Martin Pring, it causes a break in the price movement and brings it back to the price level of the last candle. Therefore, it is advisable to be aware of such breaks in the price, identify such patterns, and not get trapped in short-term trades. 

How to identify the Pin Bar on the chart?

A Pin Bar usually looks like a wick or a wand with a long tail and a shorter body. Because of its shape, it is also known as a ‘wick’ or a ‘shadow.’

The tail in the Pin Bar pattern is of absolute importance. They are the real indicators of price action. The reliability of the price movement directly depends on the length of the tail. Along with its length, the direction where the tail points are also critical. The length of the tail represents the prices that were rejected and that the reversal is expected the opposite to that where the tail points. For example, if a Pin Bar pattern has its tail pointing upwards, this represents that the Pin Bar rejected the higher prices, and now a bearish or downward trend is going to approach. Likewise, a downward pointing Pin Bar tail represents the rejection of the lower prices and an approaching upward or bullish trend. 

Download free Pin Bar Detector Indicator

Below you can download the pin bar detector indicator. This indicator will mark bullish and bearish pin bar candlesticks.

Download Pin Bar Indicator

Trading with the Pin Bars

While trading with Pin Bars, traders should keep in mind some important notes to get a better result. First, one must not just look at a pattern with a wick and call it a Pin Bar. It has its own characteristics that can ensure a strong reversal in the price trend. Otherwise, traders can misjudge such patterns.

Following are some points that a trader should keep in mind while trading with the help of a Pin Bar:

• The length of the whole Pin Bar should be visibly more than that of the previous days’ Pin Bars.
• If it is a bearish Pin Bar, i.e., its wick is pointing upward, then it must appear in-between a bullish trend; only then will it confirm the reversal of the bullish trend. Likewise, the bullish Pin Bar with its wick pointing downward should appear in-between a bearish trend to confirm the price reversal.
•  If the price falls beneath the lower point, one must consider going short in the case of a bullish Pin Bar.
• A trader can also consider putting a stop-entry just above the highest point in the bullish Pin Bar and below the lowest point in the bearish Pin Bar. 
• It is advisable to be cautious while putting a stop to loss, as beginners can easily misjudge the pattern, and sometimes the market may turn out to move quicker than expected.

Pin Bar Support and Resistance

To counter-trend or, in simple words, go against the ongoing trend or what the Pin Bar suggests, key chart levels of resistance and support are beneficial. Resistance and support levels basically represent strong selling and buying opportunities, respectively. Therefore, if you see that the upper point of the wick in the bearish Pin Bar, appearing in the bullish trend, moves above the key resistance level, then the point at the top of the wick is a new sell signal. Also, these resistance and support levels can somehow confirm their signals of a possible reversal. 

The Pin Bars can also be authenticated when they have other indicators or patterns supporting them. For example, this junction of many patterns in a price chart gives stronger signals of the price movement than a single Pin Bar that can merely pause.

Other possible areas of confluence are support and resistance. This holds if two or more two technical indicators are pointing towards a possible reversal. It is tough to break these confluence areas. In addition to this, a higher time frame does lead to stronger areas. You can confirm these confluence zones with the help of various indicators. For example, if an area previously a support level is not showing a double-bottom pattern, this could show a possible price confluence area.

It concludes that, as opposed to a single Pin Bar, strong reversal signals are expected when Pin Bars occur as a part of other patterns. 

Trading Pin Bars chart pattern and the Fibonacci Levels

• Compute the length of the Pin Bar. Calculate it from the lowest point to the highest.
• The next step is to find the 50% and 61.8% levels of the Pin Bar. For this, Fibonacci retracement tools can be used.
• At the 50% level, the entry limit should be placed.
• As mentioned before, it is advisable to place a stop order exactly below the lowest Pin Bar point.
• Buying at market price is advisable soon after the close of the Pin Bar pattern.
• The level of take-profit can be twice the distance of the entry point.

The visible battle between the bulls and the bears in the Pin Bar pattern to dominate each other and gain their place in the price chart can cause conflicts between the actual price reversal opportunities. This means that it is not always confirmed to see a price reversal right after seeing a Pin Bar; there can be pullbacks. That is where the stop loss helps the traders. 

In case of such pullbacks, traders can take the help of the Fibonacci ratio to get a healthier risk-reward ratio.

Points to Remember About the Pin Bars

Some more points can help the trader to understand the Pin Bar pattern more clearly.

• It is advisable to consider the movement of price near or before the pattern in the price chart. This is because not all the patterns can confirm the reversal of price. For example, if the Pin Bar, bullish or bearish, is not strong enough or the Pin Bar’s length is smaller than it should be, then it is not a price reversal signal but only a pause in the trend. 
• The length of the Pin Bar is significant, along with its position in the price chart. Some may also state that the ideal length of the whole body of the Pin Bar should be somewhere between 20% of the whole length of the pattern for a trader to consider it as an entry or exit point.
• Because of the similarities, Pin Bars can confuse the traders with other patterns like the ‘Doji candlestick’ and the ‘hanging man.’ This is where identifying pin bar patterns with the help of their position and length helps the traders to differentiate between these similar patterns.
• Timeframe charts are also essential to consider while trading with Pin Bars. Ideally, 4-hour timeframes are much better than the 5-minute timeframes. Daily timeframes can also be considered suitable.
• The tip of the Pin Bar is always pointing opposite to which the trend is expected to turn its directions. Thus, a bearish pin bar has its tail pointing upwards, while a bullish pin bar has its tail pointing downwards. 
•  Always compare the length of the wick of the Pin Bar with the previous price trends. If it does not exceed it, it may be a fake Pin Bar.

Every severe trader knows the importance of a candle pattern. One such pattern is the inside bar pattern. Within the financial markets, it occurs regularly. By incorporating this particular pattern within a trading system, you can significantly enhance your market analysis technique. Read along to know what this bar pattern has to offer to you.

Defining an Inside Bar Pattern

What is an inside bar pattern?

An inside bar pattern represents a two-bars pattern where the second bar has a price range that is completely inside the first day’s price range. The inside bar (the second bar) is smaller because the high is lower than the first bar’s high, and the low is higher than the first bar’s low. Usually, trends will continue to follow major trends that follow the first candle.

One of the famous continuation/reversal candle formations is the inside bar. It requires no more than two candles to present themselves. The inside bar pattern is a direct play that could be used on short-term market sentiment, especially if you are looking to enter the market before the big moves in the market. 

The inside bar shows how reluctant the prices are to progress below or above the high or low formed by the preceding candle, which indicates market indecision.

Identifying an Inside Bar 

If you want to identify the formation of this bar on the Forex charts, you can use the following steps:

• Use technical indicators or price actions to identify preceding trends.
• Look for the point where the inside bar is completely engulfed by the previous candle, low or high.

What is an Inside Day Candle Pattern?

An inside day candle pattern implies a two-day price pattern where the second day has a price range that is completely inside the first day’s price range. Price after the second day usually continues to move in the major direction (continuation pattern).

How to Use the Inside Bar Pattern for Trading?

There are many ways in which you can upgrade your trading strategies using this candlestick pattern. We are sharing the top strategies and tips with you.

It is regarded as a continuation pattern by some traders even though it is possible to see a breakout in the opposite direction. After the prices have trended down or up for a considerable period of time, a pause in the movement of the prices precedes a trend reversal. Since the inside bar pattern represents the pause, traders use it for short-term trades or swing trading done in the counter-direction. The goal here is to hold a particular trade for less than ten bars. 

This is not the only way of using this candlestick pattern for trading. The other way has its foundation in the information that is not revealed by the inside bar pattern. The formation of this pattern tells the traders that the market is unwilling to push the prices in either direction. They are neither going up nor down. Stagnation in the prices could happen for several reasons, like:

• A significant report is about to the issued. 
• The market has witnessed a significant leap, making traders wary of bidding prices too low or high.

Irrespective of the reason, every trader has the same motive; to seek potential volatility to further the profits. When the market is stuck in limbo, traders are unwilling to break the existing prices by bidding higher or lower; it could be seen as a potential sign of volatility that will be heightened in the future. In this case, the inside bar is not telling us about the stock prices; rather, it informs us that the market is currently waiting for something big to happen in the future. Traders should hold their horses and get active when these potential opportunities present themselves.

The Breakout Strategy of the Inside Bar

The inside bar shows us short-term consolidation within a trending market where the volatility is at a low. In this situation, the traders are looking out for a breakout once a new high or low has been formed in the market.

Is the Inside Bar Pattern Reliable?

Let’s begin this answer by stating an obvious fact; nothing is absolutely reliable in the world of trading. All the technical indicators are prone to glitches and manipulation, and the inside bar pattern is no different. If we keep aside the general warning aside, there is a lot that an inside bar pattern can offer to the trader. Reversals or continuation signaled by this pattern makes it complex. In addition to that, you can also see false breakouts that lessen its reliability. This can be overcome if you use this pattern with other indicators or part of your overall trading strategy.

On the positive side, this candlestick is new-trader friendly. Unlike other indicators and patterns that are difficult to understand, this bar is quite straightforward. It occurs frequently and offers favorable risk-reward ratios.