The Inside Candlestick Formation:
The Inside Bar formation is made of two candlesticks. The second candle is completely covered by the shadow of the first candlestick (also known as Mother Candle). This formation is a good opportunity for Price Action traders. Since this will give you a good risk-reward ratio, because a smaller Stop-loss is needed compared to lots of other formations.
The Inside Candlestick formation indicates an indecisive period or a period of consolidation. Inside Candlesticks mostly occur after a big up or downwards movement of the market. They can also occur at turning points in the market, and key decision points as key support and resistance levels.
Most effective way to trade successfully with the Inside Candlestick setup is to indicate the highs and lows of the first Mother Candle. Most likely the market will break through the high or low and move on in this particular direction. So, best way to trade in this Price Action pattern is to place a buy stop order at 5 PIPs above the Mother Candlestick’s high shadow or a sell stop 5 PIPs under the Mother Candlestick’s low shadow.
The Stop-loss has to be placed at the other side of the Mother. So, 15 PIPs above. When the price certainly breaks out your there with floor seats tickets! Cancel the other stop for prevention when the market suddenly reverses. Set up your target levels in line with your earlier Support/Resistance levels.
First step recognizing the Inside Candlestick Formation is drawing a marked box from the upper and lower shadow of the Mother Candle. This has to be very accurate.
Brilliant formations to trade at important Support and Resistance levels in order to cope with the reversal. Once you’ve marked the formation with you rectangle tool it’s time to move down to the lower time frames and setup your trade!
The best Inside Candlestick Formations are found at the daily time frame.