Inside Bar Trading Strategy


If you are a fan of pure price action trading using candlestick patterns, then this post will be of particular interest to you. Today we will discuss a powerful candlestick formation which can often precede a sharp price move.

This formation that I am referring to is the Inside Bar pattern. We will discuss the structure of the inside bar setup and the psychology behind it. 

What is an Inside Bar ?

The inside bar is a two bar candlestick pattern, which indicates price consolidation. In order to confirm this pattern you need to see a candle on the chart, which is fully contained within the previous bar. In this manner, the inside bar candle should have a higher low and a lower high than the previous candle on the chart.

How to Enter & Exit a trade

When the price action completes an inside candle on the chart, you should mark the low and high of the Inside Bar consolidation range. These two levels are used to trigger of a potential trade. The inside Bar candle gives us clues for an eventual breakout and likelihood of a continuation outside the range in the direction the break, however, it doesn’t give us information about the direction of the breakout through the range, prior to the actual move.

In simple terms, if the price action extend outside the range upwards, then you should go long. If the price action breaks the range downwards, then you should trade the short side.

STEP 3: Keep up the Momentum

IT is really important that in the course of building up the equity curve and making profits, the master trader keeps the momentum. It is not rare that when traders reach their targets (or come close), they blow up their accounts. This outcome is more or less due to the fact that reaching your goals is putting you in the realm of the unknown, thus coming back to the “comfort zone” or your starting point acts as an excitement-relief tool. Therefore, master traders should learn how to be comfortable with success. It is important that the master trader continues to envision greater goals and sustain the momentum throughout. In order to do that, the master trader should learn how to separate what happens on the marketplace from his/her own emotional responses. The master trader then needs to accept the fear of being in an unknown zone by strong willpower and stop trying to change this new state. In other words, one needs to be able to accept the unknown and embrace it with both hands. The master trader should aim at reaching a phase, where he/she should not focus on what others think of them. The master trader should not be surrounded by his/her own thoughts of winning/losing, but on the target and how to reach it. The master trader should aim to be in a state where trading is not an exhilaration by itself, but a commitment, where trading opportunities are taken effortlessly with the sole aim of reaching targets.

STEP 4: No Euphoria or Fear

The master trader should get out of the habit of being a control-freak of what is happening on the marketplace. One should be able to get rid of the feeling of being special in any way and just take what the market has to offer along the way. That’s the time to liberate yourself of any fears that are deeply ingrained in your sub-consciousness and start acting in a realistic way without trying to control the market or trying to predict future events. You should learn how to cope with your inner desire to “predict” the way of the market and instead follow your trading plan. Instead of being too euphoric or fearful, the master trader is already ready for the next trade, without even thinking about it. The master trader already knows that a few successful/losing trades do not mean anything in the long run.

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