Skip to content

inside-bar-reversal-strategy

Simple but strong candlestick pattern, the Inside Bar.

It helps timing low-risk entries.

Why?

You can trade trends or market reversals.

Yes!

Then…

What’s an Inside Bar?
Inside Bar is a “covered” candle.

So…

I, I
Inside Bars indicate lower market volatility.

Stock Traders!
Discover how to beat the markets and earn an additional 10%, 20%, or 40% a year without studying charts or financial reports.

This webclass begins:

10 \sDays \s06 \sHours \s38 \sMinutes \s51 \sSeconds
Yes, Reserve My Seat Now, but not all Inside Bars are equal.

Why…

1. Small inside bar
Inside Bars have a short range and are “covered” by the previous candle.

Markets are indecisive and volatile.

E.g.

I, I (Note: This will be the focus of our article)

2. Large inside bar
Inside Bar has a wide selection.

This is still an Inside Bar since the previous candle “covers” the candles.

Inside Bar’s variety is very vast.

Depending on the Inside Bar’s closing, this might signal hesitation or a market reversal.

So…

Large Inside Bar with bullish close:

Large Inside Bar with a tiny body suggesting indecision:

Multiple inside bars
You can combine Inside Bars.

This pattern shows little market volatility.

And market volatility fluctuates from low to high (and vice versa).

Multiple Inside Bars indicate the market is set to make a huge move.

Then…

I, I Inside bar…

Don’t commit this Inside Bar error…
Now:

Many traders trade Inside Bar breakouts.

It’s a low-probability trade, especially in “choppy” markets.

How to exchange an Inside Bar?

What’s next?

Continue…

Inside Bar reversal approach
But:

Inside Bars are popular among traders (like Support and Resistance).

Ex:

Price creates an Inside Bar near Resistance.

When the Inside Bar breaks, traders short.

This strategy is fake-out-prone, thus I don’t like it.

I prefer pricing to reverse first, then form an Inside Bar.

Two things:

Buyers made the “first wave” of the reversal.
Volatility is falling and purchasing pressure might persist if the stock goes higher.
Examples…

After a rise, USD/NOK develops a daily Inside Bar.

I, I

After a rise, silver creates an Inside Bar.

I, I

You could ask:

“Where do I buy and sell?”

We’ll discuss later.

I’ll reveal another Inside Bar trading approach later.

Catch the trend with Inside Bar trading.
Inside Bar lets you catch market reversals.

Learn how to utilize it to spot trends.

Here’s why…

Strong moving markets (price above 20MA) have modest pullbacks.

When the price “stalls” after a pullback (in the shape of an Inside Bar), enter when it resumes the trend.

How-to: (for long setups)

Wait for a retracement if the market is trending strongly (over 20MA).
Wait for an Inside Bar after a pullback.
Go long on the Inside Bar’s high break, and vice versa for shorts.
Examples…

West Texas Oil Daily winner…

I, I

West Texas Oil Daily winner…

I, I

GBP/JPY 4-hour trade loses…

I, I

We’ll discuss stop loss and trade management later.

I’ll reveal a “special” Inside Bar so you may profit from stuck traders.

Read…

Hikkake Pattern: Inside Bar Variation

You saw an Inside bar and are bullish.

When price breaks above the Inside Bar highs, go long.

The market reverses 180 degrees and collapses, leaving you in the red.

Hikkake Pattern (a false breakout pattern).

Then…

Hikkake bearish:

I, I Bullish Hikkake Pattern:

I, I Now…

Hikkake is exchanged like an Inside Bar (catch the reversal or catch the trend).

It’s more strong since breakout traders missed the move (and their stop orders would push the market in your favour).

Inside Bar: Entrances, exits
I’ve discussed Inside Bar trading tactics and techniques.

How do you handle entrances, stops, and exits?

Discover…

Bar’s entrance
When the price breaks the Inside Bar, place a stop order.

This is my favored strategy since you’ll enter the trade when the price swings in your favor, although a false breakout is possible.

Or, you can wait until the candle closes and miss a significant move.

There’s no right or wrong answer, so find what works for you.

Next…

Stop-loss
Set your stop loss beyond the Inside Bar lows.

Why?

Because The Hikkake Pattern is an Inside Bar variant.

If you put your stop loss below the Inside Bar lows, you may get stopped out early on a Bullish Hikkake Pattern.

For long trades, position your stop loss 1 ATR below the Inside Bar low for greater “breathing room”.

Set your stop loss 1 ATR from the 20MA for Catch The Trend (since the market finds Support at the 20MA).

Watch this video to discover how to set your stop loss using the ATR indicator.

Exit bar
Goals determine your exits.

Capture a swing or ride a trend?

Swing!

To capture a swing, exit your trades before opposing pressure.

Ex:

Longs should leave before Resistance or swing high.

So…

I, I

Trend-ride

Trail your stop loss if you want to ride a trend.

Using 20MA, you may track your stop loss.

Example…

I, I

Logic?

Awesome!

Inside Bar price analysis Bonus:

Inside Bars vary.

Some Inside Bars feature a huge selection.

If you wish to trade the Inside Bar breakout, use the small range one.

Why…

1. Stop-loss is tighter

Set your stop loss using the Inside Bar low (the smaller the Inside Bar, the smaller your stops).

With a lesser stop loss, you may increase position size while maintaining risk.

2. The price might rise soon.

But:

The market’s volatility rises (and vice versa).

If you trade a tiny range Inside Bar, volatility is low and it might expand in your favor.

This implies you can acquire a decent R multiple quickly.

Conclusion
Today’s lesson:

Inside Bars represent market indecision.
Inside Bars vary. Inside Bar’s range and bodily substance.
Inside Bar trades reversals or trend (it depends on the context of the markets)
Hikkake Pattern is a fake breakout of an Inside Bar that traps traders.
Small-range inside bars give a stronger risk-to-reward ratio for breakouts.
Next…

Trading the Inside Bar pattern.

Share your ideas by commenting.

1 thought on “inside-bar-reversal-strategy”

  1. Pingback: MACD Forex Options Strategy Parabolic SAR - My Blog

Leave a Reply

Your email address will not be published.