An INSIDE bar sits entirely within the previous candle's range — the market compressing, both sides waiting. An OUTSIDE bar swallows the previous candle's entire range including wicks — violent two-way expansion where both sides got stopped somewhere. They're opposite signatures of the same thing: energy changing state.
How traders use them
- Inside bar after a strong trend leg = a pause, not a reversal. The break of the inside bar's range often resumes the trend — that's the classic continuation entry.
- Stacked inside bars (2-3 in a row) = a coiled spring. The eventual break tends to travel; the FIRST break can also be the fakeout, so let it hold.
- Outside bars mid-range are chop at its purest — stand aside. At an extreme, an outside bar that CLOSES against the prior trend is a strong reversal candle.
Compression precedes expansion (see Volatility). Inside bars are that law drawn one candle at a time.