Trading Inside Bars at Areas of Support/Resistance

Filed under: Learn Forex Trading |

As well as trading inside bars in line with the dominant trend, you can also sometimes add to this and trade inside bars at significant areas of support/resistance. Here is one such example of this kind of trade.

 

Figure 1.

Figure 1.

Take a look at Figure 1. This is the daily chart for the EUR/USD pair (and this is a trade that I took on Forex Tester). As you can see, the market had been consolidating in a sideways range until a breakout was witnessed after two very large bearish candles. This broke through the bottom of the trading range, before retracing back up to this area. Once it reached this support/resistance zone (marked with a horizontal red line), price then formed an inside bar, with one preceding candle completely encompassing the next. This is like a mini-consolidation range, and price again is likely to break out one way or the other.

 

What we are doing here is, since the trend is still down and price is less likely to move up due to the support/resistance zone, we are betting that the market will start to move back down. Therefore, I put an order in to go short just a few pips below the low of the mother candle of the inside bar, with a stop loss just a few pips above the high of the mother candle of the inside bar, and with no target set at all – intending to manage the trade.

 

Figure 2.

Figure 2.

Figure 2 shows that this order was filled, and price started to move back down. Things were going well when another inside bar formed. It was here that I moved the stop loss to just a few pips above the high of the mother candle of this inside bar. Unfortunately, this stop loss was subsequently hit for a minor profit of around half of what we risked. More tomorrow…

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