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The Coiling Inside Bar is a candlestick/bar pattern in technical analysis. The formation is commonly observed in charts of stocks, currencies, commodities, and other trading instruments. It’s considered a continuation pattern, suggesting that the prevailing trend will likely continue after a brief consolidation phase.
Let’s break down the components of the Coiling Inside Bar pattern:
A Big-Body trending candle, often called the Mother Candle, is a significant candlestick formation that typically aligns with the prevailing market trend. This candlestick is characterised by its large size relative to preceding candles and indicates strong momentum in the direction of the existing trend.
In an uptrend, the big-body candle would have a relatively large bullish body, signifying strong buying. At the same time, in a downtrend, it would feature a sizable bearish body, indicating intense selling activity.
Coiling refers to the tightening of price action within a narrowing range. In the context of the Coiling Inside Bar pattern, it suggests that the market is experiencing decreasing volatility and trading within a tighter range, forming an inside bar. This narrowing range often indicates that market participants are undecided or waiting for a catalyst before committing to a new direction.
When these two elements combine, you get the Coiling Inside Bar pattern. It typically looks like a smaller candlestick (inside bar) contained within the high and low of the preceding larger candlestick. Visually, it resembles a coil or spring winding up before an eventual release.
The Coiling Inside Bar pattern often signals a continuation of the existing trend. If the pattern forms during an uptrend, it suggests that despite the temporary consolidation, buyers are still in control and will likely push prices higher once the consolidation phase ends. Similarly, if it forms during a downtrend, it indicates that sellers remain dominant, and the downtrend is likely to resume.
Trade Entry and Stop-Loss Placement
Traders may use the Coiling Inside Bar pattern to plan entry and exit points. A common strategy is to enter a trade in the direction of the prevailing trend once the price breaks out of the range established by the inside bar. Stop-loss orders are typically placed either below the low of the inside bar (for long trades) or above the high of the inside bar (for short trades) to limit potential losses if the breakout fails.