Inside bars are easily identified pricing patterns that can be found on virtually any chart. The pattern itself requires some simple technical analysis, which includes identifying a series of highs and lows on a daily chart. The idea is that the current candle on the graph will not exceed the previous candles high or low, thus leaving it “inside”.
So now that you have identified an inside bar, the next question is when and how to trade them.
First off, trading inside
bars lends itself to trading breakouts. The idea is that the identified
highs and lows mentioned above, will also act as support and resistancevalues.
If price breaks above resistance, traders will look to buy the market.
Conversely if price falls below support, traders will look to sell.
As the final step, setting stops and managing risk is one of the most important components of any working strategy.
Traders opting to use a 1:2 Risk/Reward ratio can
elect to target twice the amount of profit in pips relative to their
risk. This means using the example above, a 125 pip profit target would
be set. Lastly, now that your risk in pips has been
determined, you can use these values to help you determine your risk in
terms of your account balance.
