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(1) The range of this inside bar was too large. It was not a NR 4 bar, so I did not take it.
(2) The preferred breakout was to the upside, this would have been a second entry sitting on the lower band of the Keltner Channel. The breakout from the inside bar occured to the downside, so I did not take it. The bar after this inside bar is a reversal and a churn bar. So I entered long 1 tick above the churn bar, which is midrange of the inside bar.
(3) The third inside bar shows balancing action after a strong candle up. Note that the body of this inside bar is above the body of the candle up. This means that the new price has been confirmed. As I already was long from the entry above the churn bar, I only used this inside bar to adjust the stop loss just two ticks below this bar.
Target 2 was at yesterday's close. Target 2 was not met. When the climax churn bar (magenta volume) had been formed, it was necessary to exit the trade 2 ticks below the main pivot PP.
I am still bullish now, because the 15 min chart shows a potential Gartley pattern.
The following 4 users say Thank You to Fat Tails for this post:
There were two consecutive bullish Gartley patterns on the 15 min chart. The first one had already produced a bullish breakout during the night session.
During the consolidation pattern in the morning, a double inside bar developped, sitting on the trendline. The breakout occured to the upside, as expected. This was a fast and easy trade. I am still holding the second half of my position.
Interesting observation
I remember that a similar case has already been observed by somebody else on this thread.
The inside bar on the hourly chart developped as well, but it broke out to the upside by a few ticks 2 minutes prior to its completion, so it never materiliazed. This is very bullish.
This is how the best trades occur
A breakout from a 5 min chart triggers a breakout on the 15 min chart. Then the breakout from the 15 min chart triggers a breakout on the 60 min chart. In the end this can lead to a large move over several days. If I only I had the patience to let the profits run....
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I believe there is no edge in just trading insíde bars.
If this was possible, we all would become rich, quickly. Many guys who are a lot smarter than we are, would have discovered this long ago, and according to the efficient market hypothesis, any edge would have disappeared as a consequence of their trading.
However, I like inside bars, because they provide for low risk entries, at least if they are narrow range bars. So here comes my first modification, I only take inside bars that are NR4 bars as well. I admit that I stole this idea from Toby Crabel. I also trade all NR7 bars in the same way as inside bars.
Next I need a set of filters, to keep me away from false breakouts. I remember that I had tried to trade squeezes, as described in the book by John F. Carter, some time ago. After the breakout from the consolidation I was trapped as often as I was successful, so the concept as such did not work for me.
So these are my filters for trading inside bars
- at least NR 4
- higher timeframe analysis (trend and pattern) to establish breakout preference
- bar and range analysis (locaction of the bar compared to prior bar and last expansion bar)
- volume analysis (climax and churn volume)
- establishing support and resistance (prior lows and highs, floor pivots, fib lines, trend and trend channel lines)
- reward-to-risk-ratio
I do not think it is wise to a set a fixed profit target of x ticks without looking at the chart. I am also not using a money management stop, but select a stop loss, which invalidates the trade idea, when hit. Of course, the actual stop needs to be smaller than the calculated money management stop.
The reward-to-risk ratio should be at least 1:1 for my first target. To establish the first target, I need to look at support (short setup) or resistance (long setup). My stop-loss is x ticks above or below the inside bar. My total risk therefore amounts to the range of the inside bar + 2 (x + slippage). This needs to be smaller than the distance from my sell stop (short) or buy stop (long) to the profit target.
Or to put in simple words: I want that the profit side of my bracket order is larger than the loss side, otherwise I won't take the trade.
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Many guys who are a lot smarter than we are, would have discovered this long ago, and according to the efficient market hypothesis, any edge would have disappeared as a consequence of their trading.
