3 Proven Inside Bar Trading Strategies you Need to be Profitable

Introduction

Inside bars are a popular trading strategy that involves identifying price action within a defined range or “inside” a previous price range. These patterns can provide traders with valuable information about potential market direction and can be used in a variety of different trading situations. This article will discuss three proven inside bar trading strategies that traders can use to increase their profitability.

How to Trade Inside Bar?

To trade inside bars, traders can follow these steps:

1. Identify the inside bar pattern: To trade inside bars; traders need to be able to identify the pattern. This can be done by looking for a candlestick with a high and low that is completely contained within the range of the previous candlestick.
2. Determine the trend: It is important for traders to determine the overall trend of the market before entering a trade. If the market is in an uptrend, traders should look for long trades, while if the market is in a downtrend, traders should look for short trades.
3. Look for confirmation: Once the inside bar pattern has been identified and the trend has been determined, traders should look for confirmation before entering a trade. This can be done by looking for other technical indicators or price action patterns that support the trade.

Qualities of a Good Inside Bar Pattern

There are several qualities that make for a good inside bar pattern:

1. The inside bar should be contained within the range of the previous candlestick.
2. The inside bar should have a smaller range than the previous candlestick, indicating a lack of momentum or indecision in the market.
3. The inside bar should occur after a strong move in the market, suggesting that the market is pausing or consolidating before making a further move.
4. The inside bar should be accompanied by other technical indicators or price action patterns that support the trade, such as a breakout from a trendline or a clear support or resistance level.

How Will the Inside Bar Strategy Work?

The inside bar strategy can be used in a variety of different trading situations, including trend trading, range trading, and breakout trading. The strategy works by identifying a potential change in market direction based on the formation of an inside bar pattern.

Basis of the Inside Bar (IB) Strategy

The basis of the inside bar strategy is the notion that when a currency pair is contained within a defined range, it is likely to make a move either up or down. By identifying the inside bar pattern and looking for confirmation from other technical indicators or price action patterns, traders can potentially enter trades in the direction of the breakout and set profit targets at key levels of resistance or support.

The First Inside Bar Strategy

This inside bar strategy combines a breakout from a key level of support or resistance with an inside bar pattern. This approach is based on price action analysis and has been known to have a high rate of success.

The Components of The First Inside Bar Strategy:

• Support and resistance levels: These are important points in the market where price may change direction.
• Inside bar pattern: This is a candlestick pattern in which the high and low of the candlestick are completely contained within the range of the previous candlestick.
• Fibonacci extension tool: This is a technical analysis tool that uses Fibonacci ratios to project potential levels of support and resistance.

How to Successfully Execute the First IB Strategy?

1. Identify a strong support or resistance zone: Look for an area of the chart where the price has bounced at least three times.
2. Look for an inside bar pattern after a breakout from the support or resistance zone: The breakout candlestick should be a “mother” candlestick with a large body and small wicks.
3. Place a pending order: If the breakout is from a support zone, place a pending sell-stop order below the inside bar. If the breakout is from a resistance zone, place a pending buy-stop order above the inside bar.
4. Set the stop loss level: This should be placed on the other side of the inside bar. For example, if the order is opened at the high of the inside bar, the stop loss should be set below the low of the inside bar.
5. Use the Fibonacci extension tool: Highlight the 1.618 and 1.272 levels and use them as potential take-profit levels. The first take profit level should be set at the 1.272 level, and the second take profit level should be set at the 1.618 level.

The Second Inside Bar Strategy

The second inside bar strategy combines a trendline breakout with an inside bar breakout. To implement this strategy, traders can follow these steps:

This strategy includes the following elements:

• Trendline breakout: This is when the price breaks through a previously established trendline.
• Inside bar pattern: This is a candlestick pattern in which the high and low of the candlestick are contained within the range of the previous candlestick.
• Fibonacci extension tool: This technical analysis tool uses Fibonacci ratios to project potential levels of support and resistance.

How to Successfully Execute the Second IB Strategy?

1. Identify a valid trendline setup: The trendline should have at least three bounces or touches.
2. Look for a trendline breakout accompanied by an inside bar pattern: The breakout candlestick should be a “mother” candlestick with a large body and small wicks, and the inside bar pattern should follow it.
3. Place a pending order: If the trendline is broken to the upside, place a pending sell-stop order. If the trendline is broken to the downside, place a pending buy-stop order.
4. Set the stop loss and take profit levels: The stop loss should be placed on the other side of the inside bar, and the take profit levels should be set using the Fibonacci extension tool, as described in the previous strategy guide.

The Second Inside bar Strategy combines a trendline breakout with an inside bar pattern to create a high-probability trading strategy.

The Third Inside Bar Strategy

The Third Inside bar strategy is a false breakout setup that combines a fake pattern with a breakout from a key level of support or resistance. A fake pattern is created when the price initially breaks through a key level but then quickly reverses, creating a false impression of a breakout.

This strategy includes the following elements:

• False breakout setup: This is when the price appears to break through a key level of support or resistance but then quickly reverses.
• Inside bar pattern: This is a candlestick pattern in which the high and low of the candlestick are contained within the range of the previous candlestick.
• Fibonacci ratio: This is a mathematical relationship found in nature that is often used in technical analysis to identify potential levels of support and resistance.

How to Successfully Execute the Third IB Strategy?

1. Identify a false breakout setup: Look for a big candlestick that initially breaks through a key level of support or resistance but then quickly reverses and moves back inside the key level.
2. Look for an inside bar pattern after the false breakout: The inside bar should have a small range relative to the range of the false breakout candlestick.
3. Place a pending order: If the false breakout is to the upside, place a pending sell-stop order. If the false breakout is to the downside, place a pending buy-stop order.
4. Set the stop loss and take profit levels: The stop loss should be placed on the other side of the inside bar, and the take profit levels should be set using a Fibonacci ratio. Specifically, the first take profit level should be 1.6 times the size of the inside bar, and the second take profit level should be 2.6 times the size of the inside bar.

The Third Inside bar strategy uses a false breakout setup and an inside bar pattern to create a potentially profitable trading strategy.

Conclusion

Inside bars are a popular trading strategy that can be used in various market conditions. Following the steps outlined in these three inside bar strategies, traders can increase their profitability and make informed trading decisions. However, it is important to remember that no trading strategy is foolproof and that traders should always use risk management techniques and carefully consider any trade’s potential risks and rewards before entering.