THE IB/NR4 PATTERN:
This bar pattern combines two popular price action concepts:
- Inside Bar
- Narrow Range Bar (NR4)
INSIDE BAR
An inside day (or inside bar) has a lower high and higher low than the previous bar. This means that it is nested entirely within the range of the bar immediately preceding it.
It tells us that the market is becoming less volatile (smaller range) and is staying within an established range (defined by the previous bar).
NR4 PATTERN
An NR4 pattern is a bar with the narrowest range (NR) out of the last 4 bars.
Unlike the inside day, the NR4 may push higher or lower than previous price bars. Hence, it does not guarantee sideways action. However, it helps to contextualize the decreased volatility by examining a few bars back in time.
COMBINING TWO VOLATILITY PATTERNS
As you can see, inside bars and NR4 are common standalone patterns.
However, by combining the two concepts, we get a less frequent pattern that works well for identifying days of decreased range and volatility.
Once we find an inside bar that is also the narrowest bar in the last four bars, the standard approach is to stay patient and trade the breakout as volatility resumes.
