inside bar trading strategy 4

Inside Bar Pattern Price Action Strategy Explained With Examples

Price action becomes “compressed” into a tighter range and at some point, it has to break out and resume normal volatility. Whether your inside bar is green or red is irrelevant – we only care about the highs and lows. Join the Chart Guys family to have access to a large peer group with a similar set of moral principles, a keen interest in trading, and an eagerness to help each other grow and succeed. Your specific risk tolerance will determine which level you choose, but using these natural boundaries helps keep your stop placement objective rather than arbitrary. In this post, I’m going to teach you two steps for getting ready to make an entry into the market.

The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local laws or regulations. FTMO companies do not act as a broker and do not accept any deposits. The offered technical solution for the FTMO platforms and data feed is powered by liquidity providers. Inside Bars are widely used in technical analysis due to their simplicity and potential to catch strong price movements. They can be found in various time frames but are more reliable in higher ones like the daily chart.

Lecture 17: Inside Bar Trading Psychology: Master the Mental Game for Consistent Profits

In other words, the Inside Bar has a higher low and lower high than the previous bar. It does not matter if the Inside Bar is bullish or bearish, all that matters is where the Inside Bar prints relative to existing price action. Good risk management includes setting the right stop losses and choosing the right position sizes.

It’s All About the Breakout

Here you can take your position in the opposite direction to the initial Inside Bar trade entry, placing your stop loss on the opposite level of the inside range. The best thing about Inside Bar trading strategy is that risk is very limited as compared to the subsequent movement. In simple words, you should go long if the price breaks on the upside while you should go short if the breakout is on the downside.

The Fibonacci tool is a powerful natural tool and I have used it to adjust take profit level. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.

Before we get into actual trading strategies, let’s see at what an Inside Bar looks like, what it can tell us, and why it happens. This strategy goes against the trend, using inside bars to find reversals. It needs careful risk handling and a good grasp of market moves.

• The size of the engulfing bar can change, but the inside bar must be fully inside.
• I get into much more detail in my Forex trading course on how to trade price action inside bars as well as several other setups I use when trading my own account.
• Inside bars represent a simple yet powerful price action pattern that you can add to your day trading toolkit.
• This is because both represent a period of indecision and uncertainty about the direction of the price movement.
• The first option is to place our stop loss just below the mother bar low.

For example, the inside bar pattern could also be formed with a large first candle and a second tiny Doji candle. Technically, as long as the first candle covers the second candle, then it’s an inside bar pattern. The first key to trade the inside bar as a breakout strategy is identifying a strong trend either higher or lower. However, the effectiveness of the inside bar strategy is largely based on the price action surrounding it. In other words, an inside bar alone does not constitute a valid trade setup. An Inside Bar (or candle) is a 2-bar pattern where a bar is inside the total price action of the previous bar.

A trend continuation is likely if the breakout aligns with the current trend, while a reversal may occur if the breakout moves against it. This pattern signifies a consolidation phase where the market takes a “pause,” often leading to a breakout once the price breaks above or below the Inside Bar. The two simplest and most common strategies to trade the inside bar are the inside bar breakout and the inside bar reversal strategy. Inside bars formed on higher time frames will hold more weight compared to inside bars formed on smaller time frames. For an inside bar to be considered valid both the high and the low of the candlestick or bar if using bar charts need to be completely inside the previous candle.

• The only thing that matters is whether the mother bar is bullish or bearish.
• 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.
• An Inside Bar pattern is a two-bar price action trading strategy where the inside bar is smaller and within the high-low range of the previous bar (popularly known as mother bar).
• Learn how automated trading strategies eliminate emotions and improve consistency.
• In the silver example agove, the MACD line (blue) is below the MACD signal (orange).

In order to properly explain relative size, we need to discuss how to enter inside bar trading strategy an inside bar trade and where to place our stop loss. The chart below shows multiple inside bars in a consolidating market. Notice how it’s very “choppy”, providing no clear directional bias. The inside bar can be an extremely effective Forex price action strategy. Keep in mind that you can make almost any line fit some sort of trend or support/resistance level. Try it…just draw a random horizontal line somewhere on your chart.