Price action trading is drop pin bars forex traders use bar or candlestick patterns to analyse any market such as Forex to find trading opportunities. One reason the inside bar trading strategy is a popular technical analysis technique is it is one of the best ways to indicate a potential breakout and momentum move in the market.
Let’s zero in on what’s behind the inside bar trading pattern, what traders are thinking, and how you can trade them. What Is An Inside Bar An inside bar is a candlestick pattern that needs at least two candlesticks or bars to form. The inside bar is fairly easy to see on a chart as you will see bigger bars and then smaller bars. It is not a complicated price pattern and although you will see many of them on your charts, you want to make sure you are using the inside bar trading strategy only in certain locations on your chart. What Are Traders Thinking Price action traders will look at this chart pattern and see that the inside bar represents a pause or consolidation in the market. These are low volatility ranges and the next course of action is a high volatility market and that equals a swing trading opportunity.
The high and low of the mother bar actually forms a short term support or resistance price and the inside bar shows that, at that point, there is not enough conviction in either direction. That is why you only want to trade them in certain locations because it is easy to counter-trend trade in the middle of the chart. Trading Inside Bars As with any trading Forex trading strategy, you want to make sure you are using a trading plan and have back tested the strategy you are using. You have learned that you must trade inside bars with some context that indicates the potential of a turning point or continuation in the market. The inside bar setup gives you exact places to put your important stop loss as a breakout of an inside bar should be met with momentum if it is a true resolution of the price pattern.
When an inside bar forms around these locations, it is considered significant. You need to take note of that. I have the mother bars high and lows sectioned off and the candlesticks forming inside are called the inside bars. Look for turning points below price that caused a large rally. There is no perfect profit taking plan in any swing trading strategy so whatever you choose to use, be consistent. This 15 minute chart of the GBPUSD is a great example of how many inside bars actually appear on a day trading chart.