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Breakout of the inside bar pattern confirms the direction of the market. If the price breaks high of the inside bar, then it will continue its trend it will go up. Price will reverse its trend if it breaks the low of the inside bar. This is a pure price action strategy, and it has a higher winning rate. Components of inside bar strategy 1. Inside bar Fibonacci extension tool Support and resistance zones represent strong key levels.
The Fibonacci tool is a powerful natural tool and I have used it to adjust take profit level. Procedure to be followed Follow the following steps of inside bar trading strategy 1. Keep in mind that the breakout candlestick must be a mother candlestick and it must have big body and small wicks.
Place pending sell stop below the inside bar in case of support zone breakout. On the other hand, place pending buy stop above the inside bar candlestick in case of resistance zone breakout. Stop loss level will always be placed on the other side of inside bar. Like if order opens at the high of inside bar, then stop loss will be below of low of IB. Use the Fibonacci trend-based extension tool and highlight 1.
First take profit level will be at 1. Inside bar strategy guide 2 The inside bar strategy 2 is composed of a trendline breakout and an inside bar breakout. A trendline is made up of at least three consecutive bounces of the price that make it a key level. This strategy consists of the following parameters Trendline breakout Fibonacci extension tool Steps to follow formation of inside bar pattern after the breakout of trendline works best and this breakout strategy gives profitable results.
Place a pending sell stop order in case of upward trendline breakout and pending buy stop order in case of downward trendline breakout. Stop loss and take profit levels will remain same as described in the above topic. Inside bar strategy guide 3 Sometimes, when support and resistance or trendline breaks with a big candlestick then price again come back inward the key level. It represents a fakeout. This strategy is composed of a fakey setup, and it has a higher winning ratio if it is traded with the trend.
But sometimes, after the breakout, the price again closes inside the key level. It is a trend reversal setup. Keep remembering that in this fakey setup you will buy or sell in opposite direction as compared to the two strategies discussed in the above topics. There are a few steps to follow inside bar trading strategy 3. On the other hand, place a sell stop order below the low of inside bar in case of false resistance breakout.
The chart below shows multiple inside bars in a consolidating market. The example above was an uptrend but they are just as effective if not more in a strong downtrend. So what else do we need to look for? Relative Size Matters Why does size matter? That might sound confusing for now, but it will soon make sense, I promise! In order to properly explain relative size, we need to discuss how to enter an inside bar trade and where to place our stop loss.
How to Enter an Inside Bar Setup The best place to enter an inside bar is on a break of the mother bar high or low in the direction of the trend. So now we know where to enter the inside bar trade, but to really understand why relative size is important we need to understand where to place our stop loss order.
The first option is to place our stop loss just below the mother bar low. The second option is to place the stop loss below the inside bar low. Ok, good! Just know that we should always aim for, at minimum, a risk to reward.
So if our stop loss needs to be 50 pips away, our profit target must give us at least pips. The stop loss would need to be pips away from our entry, and the trade would have easily given us pips or more. On the surface this looks like a valid inside bar trade setup. We have an inside bar on the daily chart in a strong downtrend…everything looks good. As you can see, previous support and resistance levels play an important role when determining whether an inside bar is worth trading. So, what this means that relative size of the inside bar to the mother bar is important, but support and resistance levels are equally important.
They all go hand in hand if you ask me. I see many traders making the mistake of taking inside bar trades without clearly defining their support and resistance levels. This is just asking for trouble.
As a deciding factor, the first candle must completely engulf the second candle. Identification of this candle pattern is pretty simple and easy. If you understand bullish and bearish engulfing candle pattern then you can spot it right away. Visually, the body of both candles helps you identify the pattern. Infact, even the engulfing is very small you should consider the pattern. It is not necessary for the second candle to be engulfed with a comparatively larger Mother candle.
All it matters is that you could visually confirm the engulfing. Also, the pattern is opposite to the outside bar candlestick pattern. How to trade the Inside Bar candle Pattern? You can spot the inside bar pattern in uptrend and downtrend market conditions. Similarly, the pattern occurs as a reversal pattern and continuation pattern. However, you can get significant results if you trade as a continuation pattern.
The price was moving in a downtrend and you can spot two consecutive candles. Here the first candle engulfs the second candle completely. Since the second candle is bullish it suggests a potential price reversal. Candlestick charts reflect the underlying price action in the market. The second candle shows potential consolidation of the price.
In other words, it shows the shift in the market which can be due to various reasons. However, the most important thing you should note is the price consolidation. So, forex traders should prepare for price movement after the consolidation.
In the above example after the closing of the second candle you could validate the presence of inside bar candlestick pattern. Once the pattern is validated the price indeed reversed its direction and moved upwards. Similarly, such pattern can be found during an opposite market condition.
In that case you can look for potential bearish reversal signal and validate the pattern and trade accordingly. Such as, during an uptrend if you identify a bearish mother candle and the bullish second candle. The Mother candle should engulf the second candle to validate the inside bar pattern. From here you can look for a potential bearish reversal trading opportunity using this pattern. You can easily identify the 2 candle inside bar trading pattern during the uptrend.
So, the consolidation could potentially due to the pause in the current uptrend. Once the consolidation is over, you can expect the prices to continue in the trend direction. So, forex technical traders should adopt a trading strategy accordingly. There are plenty of different trading styles to choose from and you have to decide which one will suit you the best. If you have any previous knowledge of candlestick patterns, you will get a full grasp of inside bar Forex strategy in no time.
It might seem difficult in the beginning but we are sure you are capable of mastering it and using inside bar trading strategy to your advantage. Inside Bar Forex Trading Strategy Candlestick patterns are visual and inside bar Forex trading strategy might be the most suitable trading method you can use in order to test out your abilities when it comes to spotting a trend. The basics of inside bar trading strategy Inside bars strategy involves analysing the candlestick patterns and identifying the inside bar in comparison to a previous bar or the mother bar.
It needs to be either smaller or within the range of a previous bar. Yes, it does seem a bit confusing when we put it like this but try to visualize it and it will make sense. Inside bar Forex indicator occurs after a major directional switch in the market and they appear as a way of stabilising the market situation. They might also emerge at the turning point in the daily charts. Whatever the reason, they are one of the easiest indicators to use in your trading strategy because they are very visible and if you master the basics of this trading strategy, you will start spotting them very quickly.
What is not considered trading inside bars? Sure enough, some traders are flexible and they look for equal lows and highs of both mother bar and inside bar, ignoring the definition we have presented to you in the above text. However, this is not trading inside bars even though they might claim it is. Trading inside bars requires the difference between the bars and that is a rule you have to follow if you plan to use this trading strategy. How to trade using inside bar strategy To put it as shortly as possible, general rule of trading inside bar Forex is to place a buy order at the high point and a sell order at the low point of a mother bar.
Once the trend moves below those entry points, your buy or sell order is set in motion. If you need to ensure you will not lose any sufficient amount of funds, you have to place a stop loss order somewhere within a bar. Depending on whether you are trading long or short, you might want to put your stop loss order somewhere at the top or the bottom of a bar.