Trading Inside Bar Breakouts
First of all we must know what is an inside bar, it is a candlestick pattern in which the inside bar (let’s call it IB) is within the range(high-low) of the previous bar. This previous bar is called mother bar.
Why Mother bar? Interestingly this candlestick is basically a harami candle, harami in japanese means pregnant women.
Anyways we consider this candle a compression pattern, a sign of indecision between bulls and bears. Breakout to any side can give a big move with a relatively small stoploss. I really like this candle. Check this SBI chart.
It formed an inside bar and it popped up in our scanner( later i’ll how to put up scanners for IB). So the strategy is as simple as it gets. Buy if the next candle breaks above high sell if it breaks low with stop loss as the opposite high/low.
Trading is about risk management and maintaining a higher than 2 risk reward ratio RR >2. Look at this like this if you press a spring with your fingers and release it , what will happen it will pop out big it is same with compression and inside bar breakout is the simplest and most effective. lets see what happened to SBIN after this.
It worked out perfectly and gave a nice 20% trade. Of course it won’t work everytime because not every strategy works perfect all the time but we just need strategies to work most of the time keeping our overall RR greater than 2.
Also if you combine other price action techniques with IB, it will give beautiful trading setups and better yet may be you’ll end up catching a big trend. Check the monthly chart of SBIN and tell me what you think about this trade in comments.