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Coiled spring - price compresses within the prior bar's range before explosive breakout
An Inside Bar is a price consolidation pattern where a bar's entire range (high to low) is contained within the range of the previous bar. The previous bar is called the "mother bar" and the smaller bar is the "inside bar."
What it signals: After a strong move, the market pauses to consolidate. Volume often decreases during the inside bar as participants wait for the next move. This compression typically precedes an explosive breakout.
Inside bars are neutral patterns - they don't predict direction, only that a significant move is coming. Trade the breakout, not the pattern itself. The direction of the breakout determines whether you go long or short.
The Inside Bar represents compressed energy waiting for release. The mother bar (Day 1) shows a wide range - buyers and sellers were active. Then the inside bar (Day 2) contracts entirely within that range. Both sides have paused, creating a coiled-spring setup.
The inside bar is a volatility contraction. After a wide-range day, the market needs to digest. Traders are waiting for new information, and the narrowing range builds potential energy. The breakout direction often produces a powerful move because all that compressed energy releases at once.
At key levels, inside bars become powerful decision points. An inside bar at resistance that breaks down suggests rejection. An inside bar at support that breaks up confirms the level. The mother bar defines the battlefield - the breakout declares the winner.
Place buy stop above mother bar high, sell stop below...
For breakout: Below the mother bar's low. For breakdown: Above the mother bar's high. The mother bar range defines the entire risk envelope.
T1: Measured move equal to the mother bar's range projected in the breakout direction. T2: Next support/resistance level. Inside bars at key levels with tight ranges produce the best setups.
Minimum 1:2. Smaller inside bars relative to the mother bar create tighter risk and better R:R.
The Inside Bar is a versatile pattern that works as both a continuation and reversal signal depending on where it appears. The key is the volatility compression - energy contracts before it expands.
The mother bar defines your range. Break above for long, below for short. No break means no trade.
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