What does an inside bar indicate about market momentum?

An inside bar is formed when a candle's high and low are contained within the range of the previous candle's high and low. This pattern typically indicates a period of consolidation or indecision in the market. When an inside bar appears, it reflects a decline in momentum because it shows that the market is experiencing reduced volatility compared to preceding price action.

In essence, the formation of an inside bar suggests that buyers and sellers are closely matched, leading to a lack of strong directional movement. This can signal a potential pause before the market decides on its next move, which further emphasizes the notion of declining momentum, as there is no clear trend either upward or downward during this formation.

Understanding this characteristic of inside bars helps traders to anticipate potential breakouts or continuation patterns once the market resolves this indecision.