Trade Example – The ‘Inside Bar’

Filed under: Learn Forex Trading |

I am currently testing the ‘inside bar’ setup on forex testing software ‘Forex Tester’ (www.forextester.com). So far, the test has been positive. I am looking at inside bar breakout trades in established trends (defined by an 8-day exponential moving average crossed significantly above or below a 21-day exponential moving average), and I am not setting a target with these, but rather, am managing the trades based on what price action is doing.

 

Figure 1.

Figure 1.

To begin with, take a look at Figure 1. This is the daily chart on the EUR/USD pair (the pair for the euro and the United States dollar). The inside bar setup in question is the one highlighted in green. As this is occurring in a bull trend, we place an order to go long at the break of the high of the mother candle of the inside bar (which is the longer outside bar that is engulfing the inside bar – if that is not too confusing). This is essentially a consolidating pattern, allowing the market to take a breather, and what we are looking for is a breakout and a continuation of the trend.

 

I placed an order just a few pips above the high of the mother candle of the inside bar with a stop loss placed just a few pips below the low of the mother candle. This was a 1% risk of my bank, with no target set. The breakout happened and the order was filled, and price nicely moved up for three days. At this point, I moved my stop loss up to a few pips below the low of the bullish pin bar in order to lock in some profit. Following this, a bearish engulfing pattern formed, taking out our stop loss, but for a nice 0.65% rise on the bank. Although this is not a great profit, by taking little bites out of a trend by using inside bar setups, this could make for a profitable strategy.

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