Inside Bar day trading strategy – Part 23

Inside Bar day trading strategy – Part 23

There are 3 candlestick patterns that Price Action traders trust the most. They are Inside Bar, Fakey, and Pin Bar. Even many people think that with those 3 great techniques, traders can comfortably “collect money” without resorting to any Indicators or other complicated EAs. As for me, Inside Bar will be the preferred choice when it is not too complicated and can be combined with many indicators to give extremely high-reliability signals. So in this article, I will introduce a very effective way of day trading with the pattern that has helped me to make profits in the long run.

Reasonable time frame to apply Inside Bar strategy

For day traders, the 5-minute frame (M5) will be a popular choice. However, it is just common rather than the only option. So everyone can freely trade during the day in frames M1, M15, and even H1. What you need to pay attention to the most here is which Inside Bar is worth trading and which is not.

Inside Bar candlestick pattern
Inside Bar candlestick pattern

There is one more thing that you need to keep in mind is that observing the large time frame will give you fewer chances to enter the trade. Conversely, smaller frames will give you more signals to enter orders quickly.

How to day trade with Inside Bar strategy

The following entry rules are meticulously designed by me. It has the aim to catch the first pullback in a new trend with the Inside Bar candlestick pattern. To identify the trend, we will use the moving average – SMA 21.

Rules for entering bullish orders:

  • From below the SMA, the price starts trying to move above it. A candle must penetrate and close above the SMA
  • Wait for the bullish Inside Bar to appear
  • Place a bullish order at the high of the mother bar and stop loss below the lowest low.
Open a bullish order with the Inside Bar strategy
Open a bullish order with the Inside Bar strategy

Rules for entering bearish orders:

  • From above the SMA, the price starts trying to break below it. A candle must penetrate and close below the SMA
  • Wait for the bearish Inside Bar to appear
  • Place a bearish order at the low of the mother bar and stop loss at the highest high.
Open a bearish order with the Inside Bar strategy
Open a bearish order with the Inside Bar strategy

Specific examples

EUR/USD currency pair in the downtrend

Open a bearish order with the Inside Bar strategy in a downtrend
Open a bearish order with the Inside Bar strategy in a downtrend
  • The market was above SMA 21
  • This candle penetrated and closed below the SMA, indicating a change in trend. Now we start looking for bearish Inside Bar patterns.
  • After the price fell out of the SMA, we did not see any bullish signal. Because the price retraced to the SMA but could not close the candle above, the bearish sentiment was clear.
  • When the bearish Inside Bar was formed, we placed a bearish order at the low of the mother bar with a stop loss at the high
  • There are many ways to exit. However, because we expect the trend to continue, the best way is to trail stop until a reversal signal appears.

GBP/USD currency pair in the uptrend

Open a bullish order with the Inside Bar strategy in an uptrend
Open a bullish order with the Inside Bar strategy in an uptrend
  • The session started when the price was below the SMA 21
  • Within the next 5 candles, the price succeeded and broke above the SMA
  • This minor retracement was rejected by the SMA, indicating that the bullish sentiment was clear and the price couldn’t correct further.
  • A mother bar with a long body appeared when the market formed a new high. These new candles had small bodies, showing that the selling and buying forces were quite balanced
  • During the accumulation phase, a bearish Inside Bar setup was formed. We placed a bullish order at the high of the mother bar with a stop loss at the low.

Review of day trading strategies with Inside Bar

In a highly liquid market, at a suitable time frame, Inside Bar setups provide entry opportunities with a very high probability of winning. It is both a tool for the timing to enter an order, and can accurately determine risk (with a stop loss in the natural position of the remaining tail of the mother bar). However, there are 2 points you need to keep in mind when trading this strategy.

Let’s identify new trends forming. Because retracement trades at the beginning of the trend have a higher probability of winning and a greater chance of making a profit at the beginning of the trend.

AVOID the accumulation zones. This is a very important point when trading with the Inside Bar. Inside Bars appearing at accumulation zones are often worthless because the market here is very unpredictable and often has false breakouts. The problem here is to distinguish whether the pattern is located in the accumulation zone or not.

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Inside Bar day trading strategy – Part 23
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