Inside bars and outside bars are two of the most useful single-candle (and two-candle) patterns in price action trading. One marks a market catching its breath; the other marks a sudden burst of volatility. Knowing the difference — and the context that makes each tradeable — separates a real signal from noise.
What Is an Inside Bar?
An inside bar is a candle whose entire range — its high AND its low — fits inside the range of the previous candle. The previous, larger candle is called the "mother bar." An inside bar represents CONSOLIDATION and indecision: the market traded within a narrower range than the prior period, neither side taking control. It often appears as a pause within a trend or at a turning point, and it reflects a coiling of energy that frequently precedes a breakout. Multiple inside bars in a row (an "inside-inside" sequence) indicate an especially tight coil and can lead to a stronger move when price finally breaks the mother bar's range.
How to Trade an Inside Bar
The standard approach is to trade the BREAKOUT of the mother bar's range. Place a buy stop just above the mother bar high and a sell stop just below the mother bar low, and let price tell you the direction by triggering one side. In a clear trend, inside bars are often traded only in the trend's direction — buying the upside breakout of an inside bar in an uptrend, for example — because trend-aligned breakouts have better odds. Inside bars at a key support or resistance level are particularly interesting: a breakout away from the level can signal continuation, while a failed breakout (a false move that snaps back) is itself a tradeable reversal signal. Always define a stop on the opposite side of the mother bar.
What Is an Outside Bar?
An outside bar is the opposite: a candle whose range ENGULFS the prior candle, making both a higher high AND a lower low than the previous bar. It represents VOLATILITY EXPANSION — a period where price swung more widely than the one before, often on increased participation. An outside bar that closes strongly in one direction (a bullish outside bar closing near its high, or a bearish one closing near its low) can signal a reversal, because it shows one side overwhelming the other after probing both extremes. But outside bars can also be traps: the wide range sweeps the stops of traders positioned on both sides before resolving, so the close and the context matter more than the bar's mere existence.
Inside Bar vs Outside Bar: The Key Difference
The simplest way to keep them straight: an inside bar is SMALLER than the prior candle and sits within it (compression, coiled energy, breakout pending), while an outside bar is LARGER than the prior candle and surrounds it (expansion, a decisive swing, possible reversal). Inside bars say "the market is pausing"; outside bars say "the market just moved violently." Both are most reliable when read with context rather than in isolation.
Context Is Everything
Neither pattern means much without location and trend. An inside bar breakout in the direction of a strong trend, or off a clean support level, is far more reliable than one in the middle of choppy, directionless price. A bearish outside bar at the top of an extended uptrend, or at major resistance, is a more credible reversal signal than one in the middle of a range. Use surrounding structure — trend, support and resistance, and volume — to filter these patterns. Volume confirmation helps: a breakout or outside bar on rising volume carries more weight than one on thin volume, which is more likely to fail.
Spotting These Patterns With Charted
Screenshot your chart and Charted identifies inside bars and outside bars, marks the mother bar range and breakout levels, and reads the surrounding trend and support/resistance context so you can judge whether the pattern is a tradeable setup or noise. It flags the false-breakout and stop-sweep scenarios that catch traders who act on the pattern alone.
*This content is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss. Patterns fail, and no setup guarantees an outcome. Do your own research and consider consulting a licensed financial professional.*