An inside bar is a candle completely contained within the range (high to low) of the previous candle. It represents a contraction of volatility and indecision. Inside bars are used as breakout setups — traders wait for price to break above or below the inside bar's range (or the 'mother bar' range) to enter.
Entire second candle within the first (mother) candle's range, Multiple inside bars (inside-inside bar) increase the compression, Mother bar often represents a strong trend candle, The breakout direction determines the trade
Inside bar at a key support/resistance level, Inside bar after a strong trend move (continuation setup), Break of the inside bar range with volume, Multiple inside bars creating maximum compression
Enter on break of inside bar high (bullish) or low (bearish), Stop on the opposite side of the inside bar, Target the measured move or next key level
4H, Daily are optimal; works on lower timeframes with faster execution
Inside bars are best traded as breakout setups, not reversal signals. The mother bar defines the true range. If trading daily, you can use 4H for a tighter entry after the daily inside bar forms.
The piercing line is a two-candle bullish reversal pattern where a down candle is followed by an up candle that opens below the prior low and closes above the midpoint of the prior body. The dark cloud cover is its bearish counterpart — an up candle followed by a down candle that opens above the prior high and closes below the midpoint. Both patterns signal a potential shift in sentiment when they appear at key support or resistance levels.
Doji and spinning top candles signal indecision between buyers and sellers. A doji has nearly identical open and close prices, while a spinning top has a small body with long wicks on both sides. These patterns are most significant at the end of extended trends where they can foreshadow reversals.
A bullish engulfing pattern occurs when a large green candle completely engulfs the prior red candle near the bottom of a trend. A bearish engulfing is the opposite — a large red candle swallows the prior green candle at the top. Engulfing patterns are among the most reliable two-candle reversal signals.
A marubozu is a candle with no wicks (or very small wicks) — the open and close are at the extreme ends. A bullish marubozu opens at low, closes at high. A bearish marubozu opens at high, closes at low. Marubozus represent maximum conviction and can signal the start of a strong momentum move.