Another type of candlestick we’re going to be using is the Inside Candle, also known as an Inside Bar, or IB. Even though the majority of people trading Forex today use candlesticks on their charts and not bars, the common name for this formation is still “Inside Bar,” so that’s the term I’m going to use.
An IB formation is one candle that is completely engulfed by the previous candle. Here is an example:
Notice how the top of the green candle is under the top of the red candle, and the bottom of the green candle is above the bottom of the red? This is an IB. An IB is the same type of signal as a Long Wicked Candle. In fact, the first candle of the IB formation will often be a LWC.
Just like LWC’s, IB’s can tell us that a possible reversal is coming. Here’s a chart with some IB’s circled. Notice how the IB’s are at the top of the price waves, just before price reverses and moves in the opposite direction.
Remember, just like LWC’s we’re not taking any trades based off IB’s alone, they are used in conjunction with LWC’s and the other signals we’re going to learn in later lessons.
As you might have guessed, an Outside Bar (OB) is the exact opposite of an Inside Bar. In an OB formation the second candle has a top that is higher than the first candle, and a bottom that is lower than the first candle.
An OB is also a possible reversal signal, with a slight twist… It can also be a continuation signal, showing us that price will continue to move in the same direction! How do we know the difference? By the direction (color) of the candle. With OB’s the price will usually continue moving in the same direction in which the OB closed. Here are a few examples.
Remember, with OB’s it is vital that you watch the color of the candlestick. If we are in a downwards trend of red, bearish candles then we are looking for a green, bullish OB to signal a reversal.
That’s all we need to know about candlesticks! I told you it would be easy. Now we can move on to the foundation of my method, Support & Resistance.