Trading the Inside Bar

Today  we conclude our series on price action trading strategies  by looking at “Trading the Inside Bar.” To refresh our memories, Monday, we looked at “ How To Trade The Pin bar”, Yesterday, we touched on “How To Trade The Fakey Pattern.” So onward to the Inside Bar

The Inside Bar Forex Trading strategy is a high probability strategy with a good risk reward ratio. Unlike other price action set ups, the inside bar strategy requires fewer stop losses. You’d be better trading inside bars during the daily chart timeframes and preferably in strong trending markets especially when breakouts influence the direction of the trend. I guess the first question we should be asking is:

What is an Inside Bar?

Well an Inside Bar is a bar that is nicely tucked within the range of the preceding bar, popularly known as the mother bar.  The inside bar typically has a higher low(HL) and a lower high(LH) than the mother bar. On some smaller time frames, the inside bar is shaped like a triangle.

insidebar-motherbar

As the anatomy suggests, the inside bar is nicely sandwiched within the high and the low of the mother bar. It is also possible to have multiple inside bars within the range of a mother bar. Such a scenario suggests a possible breakout.

What Does an Inside Bar Suggest?

An inside bar suggests  a period of consolidation. Inside bars take shape  as a market consolidates after a strong market offensive. They occur at crucial  pressure points  such as major support/decision levels. The inside bar also provides a low risk opportunity to enter a trade or a safer exit point. Like I hinted earlier, the inside bar acts both as a continuation signal and a turning point  signal. For beginning traders out there, inside bars would be a lot easier to deal with. However, reversal signals can be very tricky to deal with. So you’d be better off leaving them alone until you have bagged enough experience  dealing with continuation signals.

How Do I Trade The Inside Bar?

Now how do I trade the inside bar? Well, you can trade inside bar two ways. You can trade the inside bar as a continuation signal or a reversal signal.

insidebar-continuation-reverse

 

As you can see from the graphic, the inside bars act as both  reverse and continuation signals. We see an inside bar forming at a support level, and then the market breaking in the opposite direction. The market then moves higher from the inside bar pattern that formed at the previous level of support

Where Do I Place Stop Losses?

Now some of you are probably wondering “Where do I place stop losses?”   The most common stop placement of choice is just below the mother bar high or low  depending on whether you are going long or short. There is not point trying to figure out the best distance. Either, the trade works or it doesn’t.

Below  is an illustration of the stop placement

insidebar-highlow

 

The next typical stop placement  is on inside bars with large mother bars You may want to place your stop loss at the 50% level-that is halfway between high and low of the mother bar. If you want to achieve a  solid risk reward ratio, the 5o% level is the way to go. The illustration below says it all.

insidebar-motherbar

Trading Inside Bars as Continuation Signals

You can also trade inside bars as continuation signals. The most appropriate time to trade an inside bar is when the market is trending strongly  or the market is moving in the opposite direction or it decides to take a break. Inside bars came in handy on the daily or 4 hr chats. But you’d be better off sticking to the daily charts until  you have perfected the inside bar setup in this time frame.

insidebar-continuationsignal

The above graphic illustrates  inside bar setups on the back of a strong upward trend. This resulted in a clean breakout. When you see such a scenario, it’s time to buy..

Trading Inside Bars as Reverse Signals

It’s also possible to trade reverse signals. But please make sure you’ve perfected the continuation signal pattern before jumping into reverse signals. Reversal signals can play tricks with your trades. Besides  it will not be in your best interest to jump straight into the lion’s den.

inside-reversal

 

 

As  you can see from the graphic here, the inside bar setup on the left  reveals a period of consolidation and indecision on the market’s side. A downward slide ensues as price breaks down past the inside bar’s mother bar. In such a scenario, it’s time to sell.

If you’re stumbled in here looking to join the forex trade bandwagon look up Why Forex Trade Is So popular.  Next,if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots,  get started with What is Price Action Trading?  and then build up from there by reading the other price action posts on the blog.

That’s wrap for”Trading The Inside Bar.” Hopefully you’ve learnt  a lot for these three price action strategies. And I’m sure you’ve also learnt that you don’t need a zillion price indicators clustering your screen either. But that’s not the end though..There’s more price action tips where those where those came from. So till next time take care.

 

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