inside bar trading strategy: #4: Inside Bar Trading Strategy

And finally we will go through a few of inside bar variations that you should become familiar with. In this case, the right inside bar trading move would be to open a position on November 9, while the price is still within the range set by the inside bar. Since price volatility has subsided and the price stayed completely within the range of the previous bar, either buying pressure has increased or selling pressure has decreased. Other traders would do it differently, but ultimately, this entry itself is not going to be profitable in the long run. Because it is within the range of the previous bar highs and lows.

Notice how the second candle in the image above is completely engulfed, or contained, by the previous candle. In this case, the bearish candle represents a broader downtrend, while the bullish candle represents consolidation after the large decline. I shared with you a variation of the Inside Bar, like the Fakey setup, the flag patterns, the pennant, et cetera. And when price breaks out of the range, this is where the market has signaled to you that it wants to trade lower. The image above illustrates how all three pieces of the pattern work together simultaneously.

Inside Bar trading strategy — Catch the trend

The blue circle on the price graph above shows an inside bar candlestick pattern. See that the highest and the lowest points of the small bullish candle are fully contained within the previous bearish candle. The black horizontal lines on the image define the inside bar range – the high and the low of the pattern. When you spot a breakout through one of these two levels, then that would give you a signal in the direction of the breakout.

This allows you to achieve a much more favorable risk to reward ratio. The green arrow shows the successful breakout of the inside day formation. Note that we did have two prior attempts to break to the downside, which did not follow thru immediately. But regardless, if we had followed our stop loss placement rules, then we were never in any danger of getting stopped out for a loss on this trade. So as an informed price action trader, you should be looking for the break of the inside bar, which would provide a tradeable opportunity in the direction of the break.

Inside bar: Exit

The https://g-markets.net/ moves from a period of low volatility to high volatility . Or, you can wait for the candle to close — but you risk missing a big move. Now, don’t worry about how to set your stop loss or trade management because we’ll cover that later.

But, it’s more powerful since breakout traders got caught on the wrong side of the move . As you know, I’m a huge advocate of trading from the higher time frames as they tend to cancel out most of the noise from scheduled and unscheduled news events. There are five things you want to look for when evaluating any inside bar pattern. The inside day with narrow range is an inside candle which also has the smallest day range among the last four days. This indicates that the range is shrinking and is due for a volatility expansion.

• The Hikkake pattern is another variation of the inside bar candlestick.
• Last but not least, the size of the inside bar relative to the mother bar is extremely important.
• You can take advantage of this setup, just place a sell stop order above the high.
• This next one is a bit different from how we trade a typical pin bar setup.
• Notice how after breaking trend line support, AUDNZD formed a bearish inside bar.

Practice identifying inside bars on your charts before you try trading them live. Your first inside bar trade should be on the daily chart and in a trending market. Prior to forming this range, USDCAD had been in a strong rally for more than eight months, creating a broader bullish sentiment. The setup we traded formed after trend line support had held on four separate occasions. As with the traditional pin bar strategy, the stop loss should be placed above or below the tail of the pin bar. If the market reaches this area, the pattern is compromised and the setup is no longer valid.

Entry

The pair then retested former support as new resistance the following day and carved out a well-defined bearish pin bar in the process. The caveat is that in order for the market to continue, it has to have room to run. In other words, a bullish inside bar cannot have a resistance level nearby just as a bearish inside bar cannot have a support level nearby. Notice how the bullish inside bar above formed after USDCAD broke out from multi-week consolidation. This period of consolidation allowed the market to “reset”, or shake out profit takers and attract new buyers for the next leg up. Remember that on daily charts, it can still take several days for consolidation to yield a breakout.

The inside bar trading strategy of a price reversal has to be accounted for whenever you’re trading on inside bars. This is why a stop-loss is so important to building a sustainable trading strategy. Inside bars are most valuable when you’re looking at daily charts because they offer a larger sample size of price action on a given asset. On charts with a smaller time frame, such as one-hour or four-hour charts, inside bars are fairly common and not always a reflection of consolidation taking place. Here’s another example of trading an inside bar against the recent trend / momentum and from a key chart level. In this case, we were trading an inside bar reversal signal from a key level of resistance.

What is an Inside Bar

A daily chart inside bar will look like a ‘triangle’ on a 1 hour or 30 minute chart time frame. They often form following a strong move in a market, as it ‘pauses’ to consolidate before making its next move. However, they can also form at market turning points and act as reversal signals from key support or resistance levels.

An inside bar illustrates that consolidation has taken place over the course of an entire trading day, which signals that the shrinking range is due to expand and become more volatile. As a beginning trader, it’s easiest to learn how to trade inside bars in-line with the dominant daily chart trend, or ‘in-line with the trend’. Inside bars at key levels as reversal plays are a bit trickier and take more time and experience to become proficient at. The inside bars in the chart above formed on the GBPJPY daily chart in a choppy market.

For some traders, this can amount to a few minutes a day to look for trade potential and set pending orders. Traders who frequently turn to inside bar trading are typically traders who build their strategies around price-action trading. This price reversal occurs even though the pair was trending up in value, exhibiting multiple signs of a profitable setup.

It’s very similar to the traditional pin bar strategy, only it comes with a second dimension that makes it even more reliable. The second and less favorable option is to enter on a break of the nose of the pin bar. Entering this way gives you a less favorable risk to reward ratio.

So, when you see multiple Inside Bars together, it’s a strong sign the market is about to make a big move soon. And volatility in the markets are always changing, it moves from a period of low volatility to high volatility . Now, depending on the close of the Inside Bar, this could represent indecision or a reversal in the markets.

We’re also a community of traders that support each other on our daily trading journey. Determine significant support and resistance levels with the help of pivot points. If the price is respecting the 10-period moving average, then chances are it’s in a verystrong trend. Because it’s contained within the range of the previous bar highs and lows. Some traders use a more lenient definition of an inside bar that allows for the highs of the inside bar and the mother bar to be equal, or for the lows of both bars to be equal. However, if you have two bars with the same high and low, it’s generally not considered an inside bar by most traders.