EUR/USD Inside Bar Example

Filed under: Learn Forex Trading |

Just to reiterate what I have been saying over the past few days regarding inside bar setups, I have one more inside bar trade example for you today, again on the EUR/USD pair (the exchange rate between the euro and the United States dollar). If you take a look at Figure 1, you will see the trade setup in question.

 

Figure 1.

Figure 1.

This time, the EUR/USD pair is in a very obvious downtrend, with the 8-day exponential moving average crossed well below the 21-day exponential moving average, and the chart is visibly moving down from left to right. Therefore, when this inside bar setup formed, I put an order in (on Forex Tester) to go short at the break of the low of the mother candle of the inside bar – with a stop loss placed just a few pips above the high of the mother candle, and with no target set at all (intending to manage the trade and move the stop loss as appropriate).

 

The order was subsequently filled and the pair did indeed break to the downside rather quickly, with three bearish candles in a row. Price then formed a bullish candle, which also happened to be an inside bar – so at this point I moved my stop loss to just a few pips above the high of this mother candle. This was followed by some sideways action in the market, and the stop loss was eventually hit for around a 1% rise on the bank (the risk was also 1% on this trade). This demonstrates one way that you can enter a market during a strong trend, and ride that trend for as much as possible while moving stop losses up in response to price action. This seems to be a very profitable strategy, and one that could provide a foundation and a bread and butter element of forex trading.

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