How to Trade with Inside Bars
Inside bars can be traded in trending markets in the direction of the trend, when traded this way they are typically referred to as a
‘breakout play’ or an
inside bar price action breakout pattern They can also be traded countertrend, typically from key chart levels, when traded this way they are often referred to as inside bar reversals.
The classic entry for an inside bar signal is to place a buy stop or sell stop at the high or low of the mother bar, and then when price breakouts above or below the mother bar, your 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 point (50% level), typically if the mother bar is larger than average. It’s worth noting that these are the ‘classic’ or standard entry and
stop loss placements for an inside bar setup, in the end, experienced traders may decide on other entries or stop loss placements as they see fit.
Let’s take a look at some examples of trading with the inside bar strategy:
Trading Inside Bars in a Trending Market
In the example below, we can see what it looks like to trade an inside bar pattern inline
with a trending market. In this case, it was a downtrending market, so the inside bar pattern would be called an
‘inside bar sell signal’:
Here’s another example of trading an inside bar with a trending market. In this case, the market was trending higher, so the inside bars would be referred to as ‘inside bar buy signals’. Note, often in strong trends like the one in the example below, you will see multiple inside bar patterns forming, providing you with multiple highprobability
entries into the trend:
Trading Inside Bars against the Trend, From Key Chart Levels In the example below, we are looking at trading an inside bar pattern against the dominant daily chart trend. In this case, price had come back down to test a key support level , formed a pin bar
reversal at that support, followed by an inside bar reversal. Note the strong push higher that unfolded following this
inside bar setup.
Here’s another example of trading an inside bar against the recent trend / momentum and from a key chart level. In this case, we were trading an inside bar reversal signal from a key level of resistance. Also, note that the inside bar sell signal in the example below actually had two bars within the same mother bar, this is perfectly fine and is something you will see sometimes on the charts. Trading inside bars from key levels of support or resistance can be very lucrative as they often lead to large moves in the opposite direction, as we can see in the chart below…
Tips on Trading the Inside Bar Pattern
As a beginning trader, it’s easiest to learn how to trade inside
bars inline with the dominant daily chart trend, or ‘inline with the trend’. Inside bars at key levels as reversal plays are a bit trickier and take more time and experience to BEcome proficient at.
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.
Inside bars can have multiple inside bars within the mother range, sometimes you’ll 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. You may see ‘coiling’ inside bars sometimes, these are inside bars with 2 or more inside bars within the same mother bar structure, each inside bar is smaller than the previous and within the high to low range of the previous bar
Practice identifying inside bars on your charts before you try trading them live. Your first inside bar trade should be on the daily chart and in a trending market.
Practice identifying inside bars on your charts before you try trading them live. Your first inside bar trade should be on the daily chart and in a trending market. Inside bars sometimes form following pin bar patterns and they are also part of the fakey pattern (inside bar falsebreak pattern), so they are an important price action pattern to
understand.
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.
sOURCE : price ac t i o n pdf / p ri c e action. c o m author : n e i l fu ll er