When it comes to trading—whether it’s stocks, indices, forex, metals, or crypto—finding a reliable strategy is key. One such effective and beginner-friendly method is the Inside Candle Strategy. This blog will explain what it is, how it works, and how to trade it confidently across any chart or timeframe.
What Is an Inside Candle?
An Inside Candle (also known as an “Inside Bar”) is a two-candle pattern that signals market consolidation and possible breakout.
Here’s what it looks like:
- The first candle is a large one, called the Mother Candle.
- The second candle is smaller and forms inside the range of the Mother Candle—meaning its high and low are within the Mother Candle’s high and low.
👉 It doesn’t matter whether the candles are green or red—what matters is the price range.
Why Is the Inside Candle Strategy Important?
This pattern indicates a pause in the market. Traders use it to spot potential trend continuation or breakout. It shows that the market is temporarily resting, and a big move may follow once the range is broken.
How to Trade the Inside Candle Strategy
Follow these simple steps to trade the Inside Candle Strategy effectively:
1. Identify the Pattern
Look for a large candle (Mother Candle) followed by a smaller one (Baby Candle) that stays within the high and low of the Mother Candle.
2. Mark the High and Low
Draw horizontal lines at the high and low of the Mother Candle.
3. Wait for a Breakout
- Buy Signal: When a candle breaks above the Mother Candle’s high, enter a buy trade.
- ✅ Stop Loss: Use the low of the Baby Candle.
- Sell Signal: When a candle breaks below the Mother Candle’s low, enter a sell trade.
- ✅ Stop Loss: Use the high of the Baby Candle.
Tip: The breakout candle should close beyond the level, not just touch it.
Target and Risk Management
To make this strategy effective and profitable in the long run, always aim for a minimum risk-to-reward ratio of 1:2.
Example:
- If your Stop Loss (SL) is 20 points, your Target (TP) should be at least 40 points.
- This means: Risking 1 to gain 2—a key rule followed by professional traders.
This approach ensures that even if some trades hit Stop Loss, you remain net profitable over time.
💡 Pro Tip: You can also trail your stop loss once the price moves in your favor to lock in profits.
What Timeframes Work Best?
You can use this strategy on any timeframe: 1-minute, 15-minute, 1-hour, or daily charts. If your Stop Loss is hit twice, consider switching to a higher timeframe for better clarity.
When to Stop Trading
This is a crucial rule:
If your Stop Loss hits three times in one day on the same chart (stock, index, crypto, etc.), stop trading that chart for the day.
It signals high volatility or indecision. Either take a break or shift to another chart.
Works for All Markets
The Inside Candle Strategy works across all trading instruments:
- 🏛️ Stocks
- 💹 Indices
- 💱 Forex
- 🪙 Crypto
- 🏆 Metals
The pattern and rules remain the same.
Key Takeaways
- Inside Candle = A small candle inside a bigger candle.
- Trade breakouts of the Mother Candle’s high or low.
- Use the Baby Candle’s opposite side as Stop Loss.
- Works on all timeframes and all markets.
- Avoid overtrading—3 SL hits? Change chart or stop trading for the day.
Final Thoughts
The Inside Candle Strategy is simple, powerful, and ideal for traders of all levels. Whether you’re day trading or swing trading, this pattern helps you spot high-probability breakouts with low risk. Just remember: patience and discipline are the keys to success.
Want to scan for Inside Candle setups instantly?
Use our free Inside Candle Strategy scanner to find real-time opportunities across stocks and charts.
Click here to access the Inside Candle Scanner on Chartink
Want more simple and high-probability strategies like the Spinning Top, 5 EMA, Golden Crossover, or Bullish/Bearish Candlestick patterns? Click here to explore them all.