Inside bar in gold trading
An inside bar is a candle whose high and low sit within the previous candle's range, a sign of compression; traders play the break of the larger mother bar.
Also called Inside candle, Harami, Mother bar
An inside bar is a candle that is fully contained within the high and low of the candle before it, which is called the mother bar. It shows a pause and a narrowing range. Several inside bars in a row indicate stronger compression.
How it applies to gold trading
Inside bars often form before session opens and data releases, when gold waits for news. A breakout trader places a buy stop above the mother bar’s high and a sell stop below its low, or trades only in the direction of the higher-timeframe trend. The mother bar’s range sets the stop distance and size.
On daily charts, an inside day after a large move is a common setup. On intraday charts the signal is noisier and false breaks are common, especially on the first spike of a news release.
Worked example
Example (hypothetical numbers): a daily mother bar ranges from 3,980 to 4,040. The next day’s range is 3,995 to 4,028, an inside bar. In an uptrend, a trader places a buy stop at 4,042 with a stop at 3,993, below the inside bar’s low, risking $49, sized at 0.02 lots ($98).
A common mistake
Using the full mother bar for the stop when it is very wide, which leaves a poor risk-reward ratio. Some traders use the inside bar’s range instead.
See also: Breakout, Engulfing pattern, Volatility squeeze, Candlestick.
Frequently asked questions
How do I trade an inside bar on gold?
Place orders beyond the mother bar’s high or low, ideally in the direction of the higher-timeframe trend, with a stop on the other side of the inside bar or mother bar.
Is an inside bar the same as a harami?
They are close. A harami is defined by bodies; an inside bar is defined by the full range, including wicks.
Which timeframe is best for inside bars?
Daily and 4-hour inside bars tend to be more meaningful than those on very low timeframes.