Using Inside Bar Forex Trading Strategy

The inside bar forex trading strategy is the simple price behavior strategy in Forex trading. It is often called as the set and forgets type of system. It does not require other forex indicators as it is purely based on price movement.

If you are the kind of trader who cannot allocate their entire time on trading and have other matters to attend to daily, or if you are interested in selling and wants to get into it, this type of Forex trading strategy is perfect for you. 

What you need:

• Any Currency Pair
• 4hr and/or daily time frame

What you don’t need:

• Other Forex indicators

THE INSIDE BAR

An inside bar is a two candlestick formation. The first candlestick, also the bigger one, is called the mother candlestick. The second one that forms after the mother candlestick and is within its shadows is called the inside bar. Below is what an inside bar looks like:

Taken from https://www.elearnmarkets.com/blog/6-characteristics-of-a-profitable-inside-bar-setup/

On the photo above, it shows:

• The inside bar wholly within the highs and lows of the mother candlestick
• A two candlestick formation (the mother candlestick and the inside bar)
• The preceding candlestick (mother candlestick) can either be bearish or bullish
• The inside bar can either be bearish or bullish

HOW INSIDE BARS FORM

Inside bars form to show a time of consolidation in the market. This consolidation can be due to:

• A time of indecision of traders stuck between the choice to buy or to sell
• Low trading activity (low trading volume)
• When the bulls and bears of the market are almost equally strong and have the undetermined direction to take

WHERE INSIDE BARS FORM

Inside bars form anywhere. However, the inside bars that traders keep an eye on the form on specific areas. These are the: support, resistance, pivots, Fibonacci levels, and trend line touch areas.

As a trader, you must pay attention only to the inside bars that form in these areas. These are the ones significant to your trading.

RULES OF INSIDE BAR STRATEGY

The Selling and Buying rules for inside bar differ, and so you must know which rules apply to each to maximize your trading profits.

Rules for Selling:

1. The market is in a downtrend.
2. When an inside bar forms, set a sell stop order at 2-3 pips below the inside bar’s lows.
3. Set a Stop Loss at 5-10 pips above the inside bar’s highs.
4. Exit trade on the third candlestick’s close (count the inside bar as candlestick 1).
5. Or, exit trade by trail stopping then locking in profits as the trade moves in your favor. Until the rate reverses and hits your trailing stop loss, you can end up with more profits than exiting a trade on the 3^rd candlestick.

Photo taken from https://forextradingstrategies4u.com/inside-bar-forex-trading-strategy/

Rules for Buying:

1. The market is in an uptrend.
2. When an inside bar forms, set a buy limit order at 2-3 pips above the inside bar’s highs.
3. Set a Stop Loss at 5-10 pips below the inside bar’s lows.
4. Exit trade on the third candlestick’s close (count the inside bar as candlestick 1).
5. Or, exit trade by trail stopping then locking in profits as the trade moves in your favor. Until the rate reverses and hits your trailing stop loss, you can end up with more profits than exiting a trade on the 3^rd candlestick.

Photo taken from https://forextradingstrategies4u.com/inside-bar-forex-trading-strategy/

ALTERNATIVE INSIDE BAR TRADING

There is an alternative to trading the inside bar. It is described as a non-directional trading system. It means that the price behavior is not exactly a significant factor; whether it goes up or down does not affect your trading decisions.

You must set a pending buy limit and sell stop order on both highs and lows of the inside bar. In this way, when the price goes either up or down, one of these pending orders will get activated. The following is a step by step guide on how to do it:

1. When an inside bar forms, set a pending buy limit order above it’s high and placed a stop loss order below its low. Aside from that, also set a pending order on the inside bar’s flat and successively set a stop loss above its high.
2. When a pending order gets activated, immediately cancel the other order that has not been activated.
3. For exit trade and take profits, use the guide above.

Photo taken from https://forextradingstrategies4u.com/inside-bar-forex-trading-strategy/

DISADVANTAGES: INSIDE BAR STRATEGY

• False breakouts can happen, and your stop loss order will be carried out as the price reverses and hits your stop loss.
• Avoid using smaller time frames when trading inside bars. There are a lot of “noise” and false signals in it.

ADVANTAGES: INSIDE BAR STRATEGY

• It provides pure price action trading.
• When you Trail Stop to lock in profit, you can earn more if the trend is strong.
• When trading using the daily chart, it takes only a few minutes daily to check the chart and place a pending order. However, remember that you must only do this if you spot an inside bar. You can check it back by the end of the day to see which order was activated so you can cancel the other one.
• Inside bars are easy to spot that even novice traders without prior experience in forex trading can use this strategy and earn a profit.

Mt4 Inside Bar Indicator

If you are still having a hard time identifying inside bars, you can use mt4’s inside bar indicator to help you learn more about using this strategy and trading forex in general.