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Master The Art of Trading
Inside Bar Trading Strategy
An 'inside bar' pattern is a two-bar price action trading strategy in which the inside bar is smaller and within the high and low range of the previous bar. Means the high of the inside bar is lower than the previous bar's high and the low of the inside bar is higher than the previous bar's low. Its relative position may be at the top, or at the middle or at the bottom of the previous bar. The bar before the inside bar, i.e. previous bar is often referred to as the 'mother bar'.
Inside bar shows a period of consolidation in a market. An inside bar in a daily chart will look like a 'triangle' on an hourly or 30 minute chart time frame. It signifies pause of consolidation before market takes any next move. Inside bar can also form turning points and acts reversal signals from key support or resistance levels.
How To Trade Inside Bars
Inside bars can be traded in trending markets in the direction of the trend or can also be traded counter-trend. It all depends upon where and how inside bars formed. When inside bars are traded in the direction of the trend, it is referred to as a 'breakout pattern'. When inside bars are traded counter-trend, it is referred to as 'inside bar reversals'.
The classic entry for an inside bar signal is to place a buy stop order or sell stop order at the high or low of the mother bar, and when price breakouts above or below the mother bar, entry order is filled.
Stop loss placement is typically at the opposite end of the mother bar, or it can be placed near the mother bar halfway (50% level), typically if the mother bar is larger than average.
It's worth noting these are the classic entry and stop loss placements for an inside bar setup, in the end, experienced traders may decide on other entry or stop loss placements as they seem fit.
In an uptrend, the formation of inside bar indicates that buyers are unable to push the price to a new high and buyers are now losing the momentum. Sellers are also unable to take the price down below the previous bar's low. Therefore, the balance between both buyers and sellers are very close. In such situation, neither the buyers nor the sellers are in control of the market, and it signifies that sentiment would be indecisive.
Similarly, in a downtrend, the formation of inside bar indicates that the sellers are unable to push the price to a new low and sellers are losing the momentum. Buyers are also unable to buy at a price higher than the previous bar's high.
Inside bar is not telling traders that the market will go higher or lower. It basically indicates the market has paused for a moment. Based on the type of breakout, traders consider going long or short. The smaller the real body of the inside bar relative to predecessor, the more dramatic the change in the sentiment of buyers and sellers, and therefore the stronger the signal.
In the example below, we are looking at trading an inside bar pattern against the dominant daily trend.
In chart - 1, price had come back down to test a key support level, formed a pin bar reversal at the support, followed by an inside bar reversal. Following this inside bar setup, a strong push higher is apparent.
In chart - 2, there is an inside bar reversal signal from a key level of resistance.It is to be noted that trading inside bar from key levels of support or resistance can be very lucrative as they often lead to large moves in the opposite direction, as shown in above charts 1 & 2.
Traders before taking any decision prefer to read the pattern of inside bar formation with the help of other technical indicators such as Relative Strength Index (RSI), Stochastic, Moving Average Convergence Divergence (MACD), Support & Resistance levels. Many conservative traders wait for the confimation with the help of other indicators before taking a trade.
Another important point to consider while trading inside bar is the time frame. Any time frame less than 15 minutes should be avoided, if you are an intraday trader and want to trade purely on the basis of inside bar pattern. Lower time frames are influenced by noise and might give you false signals.
Tips on Trading Inside Bar Pattern
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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 the key levels as reversal are a bit tricker and take more time and experience to become proficient at.
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Inside bars work best on the daily chart time frame, primarily because on lower time frames there are just too many inside bars and many of them are meaningless and lead to false breaks.
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Inside bars can have multiple inside bars within the mother bar range, sometimes you will see 2,3, or even 4 inside bars within the same mother bar structure, this is fine, it simply shows a longer period of consolidation, which often leads to a stronger breakout. Sometimes, you may notice 'coiling inside bar structure' where there are 2 or more inside bars within the same mother bar, each inside bar is smaller than then previous and within the high-low range of the previous bar.
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A trader is required to practice to identify inside bars on the charts before taking any trading decision.
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Inside bars sometimes form following pin bar patterns and they are also part of fakey pattern and a trader must remain alert and understand the pattern.
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Inside bars typically offer good risk reward ratios because they often provide a tight stop loss placement and lead to a strong breakout as price breaks up or down from the pattern.
Price Action Trading Strategies
In price action trading, traders use raw price data to analyze and anticipate fure price movement of financial markets. Price action trading strategy is based on logic and simplicity, removing all external noise including news, economics and fundamental data.
The concept of 'support & resistance' is the foundation in technical analysis of any financial asset. Many technical techniques......
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An 'inside bar' pattern is a two-bar pattern in which inside bar is smaller and within the high low range of the previous bar.......
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A pin bar pattern consists of one price bar, typically a candlestick bar, which represents a sharp reversal and rejection of price......
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Pin bar is a price action strategy showing rejecion of price and indicating a potential reversal. An inside bar shows consolidation and.....
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As the name suggests, it has a false breakout from an inside bar pattern. It is also known as 'fakey pattern......
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As the name suggests, false breakout is a breakout which has failed to continue beyond a certain level, resulting in a 'false' breakout for that level.....
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