Inside Bars

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © kruskakli
//
// Inside Bars Indicator
// 
// Description:
// This indicator identifies and highlights price action patterns where a bar's high and low
// are completely contained within the previous bar's range. Inside bars are significant
// technical patterns that often signal a period of price consolidation or uncertainty,
// potentially leading to a breakout in either direction.
//
// Trading Literature & Theory:
// Inside bars are well-documented in technical analysis literature:
// - Steve Nison discusses them in "Japanese Candlestick Charting Techniques" as a form
//   of harami pattern, indicating potential trend reversals
// - Thomas Bulkowski's "Encyclopedia of Chart Patterns" categorizes inside bars as
//   a consolidation pattern with statistical significance for breakout trading
// - Alexander Elder references them in "Trading for a Living" as indicators of
//   decreasing volatility and potential energy build-up
// - John Murphy's "Technical Analysis of the Financial Markets" includes inside bars
//   as part of price action analysis for market psychology understanding
//
// The pattern is particularly significant because it represents:
// 1. Volatility Contraction: A narrowing of price range indicating potential energy build-up
// 2. Institutional Activity: Often shows large players absorbing or distributing positions
// 3. Decision Point: Market participants evaluating the previous bar's significance
//
// Trading Applications:
// 1. Breakout Trading
//    - Watch for breaks above the parent bar's high (bullish signal)
//    - Monitor breaks below the parent bar's low (bearish signal)
//    - Multiple consecutive inside bars can indicate stronger breakout potential
//
// 2. Market Psychology
//    - Inside bars represent a period of equilibrium between buyers and sellers
//    - Shows market uncertainty and potential energy building up
//    - Often precedes significant price movements
//
// Best Market Conditions:
// - Trending markets approaching potential reversal points
// - After strong momentum moves where the market needs to digest gains
// - Near key support/resistance levels
// - During pre-breakout consolidation phases
//
// Complementary Indicators:
// - Volume indicators to confirm breakout strength
// - Trend indicators (Moving Averages, ADX) for context
// - Momentum indicators (RSI, MACD) for additional confirmation
//
// Risk Management:
// - Use parent bar's range for stop loss placement
// - Wait for breakout confirmation before entry
// - Consider time-based exits if breakout doesn't occur
// - More reliable on higher timeframes
//
// Note: The indicator works best when combined with proper risk management
// and overall market context analysis. Avoid trading every inside bar pattern
// and always confirm with volume and other technical indicators.
//
//@version=5
indicator("Inside Bars", overlay=true)


float inside = 0.0
if (high <= high[1]) and (low >= low[1])
    inside := 1
else if inside[1] == 1
    int i = 2
    while true
        if inside[i] == 1
            i := i + 1
            continue
        else if (high <= high[i]) and (low >= low[i])
            inside := 1
            break
        else
            inside := 0
            break
else
    inside := 0

vh = ta.valuewhen(inside[1] == 0 and inside == 1, high[1], 0)
vl = ta.valuewhen(inside[1] == 0 and inside == 1, low[1],  0)

color_line = input.color(defval=color.yellow, title="Inside Bars Color")
transp = input.int(defval=90, title="Color transparency", minval=0, maxval=100)
line_width = input.int(defval=1, title="Line width", minval=1, maxval=4)
color_fill = color.new(color_line, transp)

ph = plot(inside == 1 ? vh : na, title="Inside Bars High", style=plot.style_linebr, linewidth=line_width, color=color_line)
pl = plot(inside == 1 ? vl : na, title="Inside Bars Low", style=plot.style_linebr, linewidth=line_width, color=color_line)
fill(ph, pl, color=color_fill)